Asia FX slips, dollar gains as markets await more Fed cues

By Ambar Warrick

Investing.com -- Most Asian currencies fell on Tuesday, while the dollar advanced against a basket of currencies as markets awaited more cues on U.S. monetary policy from the minutes of the Federal Reserve’s February meeting and more inflation data.

Risk-heavy Southeast Asian currencies were the worst performers for the day, with the Thai baht leading losses in the region with a 0.7% loss.

The Japanese yen fell 0.1% as data showed local manufacturing activity shrank far more than expected in February. But this was offset by a bigger-than-expected jump in service sector activity.

Focus this week is on an address by Bank of Japan Governor nominee Kazuo Ueda, which is expected to shed more light on the bank’s ultra-loose policy this year.

The dollar hovered just below a six-week high against a basket of currencies, with the dollar index and dollar index futures rising nearly 0.2% each on Tuesday. Broader Asian markets are awaiting the minutes of the Fed’s February meeting, which is expected to reiterate the central bank’s hawkish stance.

A reading on the U.S. Personal Consumption Expenditures price index - the Fed’s preferred inflation gauge - is also due this week, and is expected to show that inflationary pressures remained elevated in January.

High U.S. inflation, coupled with a slew of hawkish comments from Fed officials, saw Asian currencies retreat in recent weeks as fears of more U.S. interest rate hikes grew. A spike in Treasury yields also supported the dollar and dented regional units.

China’s yuan fell 0.2%, coming under renewed pressure as the People’s Bank held its key mortgage interest rates at historical lows. A recent rally in the currency ran out of steam as markets grew uncertain over the timing of a post-COVID economic recovery in the country.

The New Zealand dollar fell 0.2% amid uncertainty over a central bank meeting on Wednesday. The bank is widely expected to hike interest rates by 50 basis points as it moves to contain runaway inflation.

The Australian dollar fell 0.2%, even as the minutes of the Reserve Bank’s February meeting showed that the bank had considered a 50 bps hike, before settling on a 25 bps raise. But the minutes reiterated that the RBA intends to adopt a data-driven approach to raising rates further.