Asia FX weak with US inflation in sight; China tariff fears dent yuan

Investing.com-- Most Asian currencies moved little on Friday as the dollar steadied from overnight declines, with focus turning squarely towards key U.S. inflation data due next week, which is likely to provide more cues on interest rates.

The Chinese yuan declined, as did currencies with trade exposure to China after multiple reports said that the U.S. was preparing more trade tariffs on Beijing. 

Regional currencies took little support from an overnight decline in the dollar, as more signs of a cooling labor market reinforced bets that the Federal Reserve will cut rates in September. 

But the dollar steadied in Asian trade, pressuring regional currencies as uncertainty ahead of key U.S. inflation data next week kept traders largely biased towards the greenback. 

Chinese yuan weakens, USDCNY up on tariff reports 

The Chinese yuan’s USDCNY pair rose 0.1% as multiple reports said U.S. President Joe Biden was considering imposing fresh sanctions on certain Chinese industries, such as electric vehicles and batteries. 

While the economic impact of the tariffs was unclear, such measures could attract retaliation from China, further souring ties between the world’s two biggest economies. 

Other currencies with trade exposure to China fell tracking this notion. The Australian dollar’s AUDUSD pair fell 0.2%, while the Singapore dollar’s USDSGD and the South Korean won’s USDKRW pairs lost 0.1% and 0.3%, respectively. 

Japanese yen remains fragile, USDJPY nears 156

Weakness in the Japanese yen persisted this week, as the USDJPY pair recouped a bulk of its losses made after the government seemingly intervened in currency markets last week.

The USDJPY pair rose 0.2% to 155.73 yen, trading well above lows of 152 it had hit earlier in May. Traders now saw 160 yen as the new line in the sand for Japanese government intervention.

Household spending data for March, released earlier on Friday, showed some resilience- a trend that could potentially underpin Japanese inflation expectations. 

Dollar steadies, set for weekly gains ahead of inflation data 

The dollar index and dollar index futures rose slightly in Asian trade, recovering a measure of overnight losses. But the greenback was still trading up about 0.2% for the week.

The greenback fell on Thursday after data showed a bigger-than-expected increase in weekly jobless claims, furthering expectations of a cooling U.S. labor market.

This reinforced some expectations that the Fed will begin cutting interest rates by September. 

But sticky inflation remained a key point of contention for the Fed, with a slew of officials warning as much this week.

Their comments put upcoming consumer price index data, due next week, squarely in focus for more cues on interest rates.