Asia FX slips while dollar steadies ahead of CPI readings

By Ambar Warrick

Investing.com -- Asian currency markets edged lower on Wednesday as traders stepped back from risk-driven assets ahead of economic cues from key inflation readings this week, while the dollar steadied from recent losses.

After logging a strong start to the week on optimism over a Chinese reopening, regional units crept lower amid uncertainty over the path of U.S. monetary policy. The dollar also recovered from a seven-month low after comments from some Federal Reserve members reiterated that U.S. interest rates could rise more than expected this year, especially if inflation runs above the central bank’s target range for longer than expected.

The dollar index and dollar index futures showed that the greenback was trading 0.1% higher against a basket of currencies on Wednesday. Focus is now on the release of U.S. consumer price index data for December, which is expected to show that inflation eased further from the prior month.

On the other hand, the Japanese yen fell 0.1% against the dollar, even as Tokyo inflation data released this week drove up expectations that the Bank of Japan could resort to more hawkish moves to support the currency and quell overheated inflation.

China’s yuan hovered near five-month highs, with the currency having marked a strong start to the year on optimism over the relaxation of most anti-COVID curbs in the country. But this optimism was tempered as China saw its worst yet COVID-19 outbreak, which is expected to further disrupt economic growth in the near-term.

Focus this week is also on Chinese CPI inflation data for December, although softening economic growth in the country is expected to result in deflationary trends.

The Australian dollar was among the few exceptions for the day, rising 0.3% and sticking close to a four-month high after data showed CPI inflation in the country rose back to 30-year highs in November. The reading is likely to attract more policy tightening by the Reserve Bank, boosting the dollar.

Separate data also showed that retail sales grew more than expected during the month, buoyed by increased discounts during the Black Friday shopping event.

Risk-heavy southeast Asian currencies logged bigger losses than their regional peers, with the Philippine peso and Thai baht falling 0.3% and 0.2%, respectively.

The Indian rupee fell 0.1% after surging to a one-month high against the dollar earlier this week. Indian CPI inflation data is also due on Thursday, and is expected to show that price pressures remained steady in December.