Asia FX ticks lower, dollar steadies ahead of CPI data

Investing.com-- Most Asian currencies weakened slightly on Monday as traders turned slightly biased towards the dollar in anticipation of key U.S. inflation data this week, which is expected to offer more cues on interest rates.

Regional trading volumes were limited on account of a Japanese market holiday, which also saw the yen weaken slightly against the greenback. The USDJPY pair rose 0.3% to 147.07 yen, pulling back further from a stellar rally over the past month. 

Anticipation of economic readings and central bank meetings from across Asia kept traders on edge, while sentiment was also soured by reports that Iran could potentially launch a strike against Israel in the coming days.

Dollar steadies, CPI data on tap 

The dollar index and dollar index futures both moved little in Asian trade, steadying after logging wild swings last week.

Focus this week is on key consumer price index data, due on Wednesday, for more cues on the world’s biggest economy.

The reading is expected to show some cooling in inflation through July- a trend that is likely to give the Federal Reserve more confidence to begin cutting interest rates. 

The greenback was battered by fears of a U.S. recession and bets on increased rate cuts in recent weeks, with traders pricing in the possibility of a 50 basis point cut in September, according to CME Fedwatch.

But some strong labor market data through last week helped spur bets that fears of a U.S. recession were overblown. 

Chinese yuan weakens, more economic data on tap 

The Chinese yuan weakened on Monday with the USDCNY pair rising 0.2%. 

While major losses in the yuan have been stemmed by persistent support from the People’s Bank, skepticism over China’s economy kept traders mostly short on the currency.

Focus this week is on Chinese industrial production and retail sales data, for more cues on the country’s biggest economic engines. 

Broader Asian currencies drifted lower, as traders remained averse towards risk-driven assets ahead of more cues on the world’s largest economies.

The Indian rupee’s USDINR pair hovered close to record highs, taking some support from a slightly hawkish messaging from the Reserve Bank of India last week. Indian CPI inflation data is due later on Monday.

The South Korean won’s USDKRW pair rose 0.4%, while the Singapore dollar’s USDSGD pair rose slightly.

The Australian dollar was an exception, with the AUDUSD pair adding 0.2% after a slew of hawkish messages from the Reserve Bank of Australia last week.