Asia FX weakens, dollar edges up with CPI data in sight

Investing.com-- Most Asian currencies weakened on Tuesday, while the dollar firmed as markets hunkered down before key U.S. inflation data that is widely expected to factor into the path of interest rates. 

The inflation data comes after a chorus of Federal Reserve officials warned that the central bank was in no hurry to begin trimming interest rates in 2024- a trend that bodes well for the dollar and poorly for risk-heavy, high-yield currencies.

A week-long trading holiday in China and Hong Kong kept Asian trading volumes muted. But the Chinese yuan fell slightly in offshore trade. 

Japanese yen nears 150 level on dovish BOJ cues

The Japanese yen was among the worst-performing regional units in recent sessions, losing 0.1% on Tuesday and trading at 149.53- a near three-month low and just a hair away from breaking above the 150 level, which heralds more losses in the yen.

Losses in the yen came chiefly after a top Bank of Japan official signaled that even when the bank begins raising interest rates this year, it was unlikely to raise rates aggressively. This scenario presents little relief to the yen, which was pressured chiefly by a widening gulf between local and U.S. interest rates- a trend that is worsened by the prospect of higher-for-longer U.S. rates. 

Fourth-quarter Japanese GDP data due this Friday is expected to show a limited improvement in growth, after an unexpected contraction in the third quarter.

Broader Asian currencies trended lower. The Australian dollar lost 0.3% and traded close to a three-month low. A private survey showed that Australian consumer sentiment rebounded to a 10-month high in early-February, amid increased optimism over easing inflation and no more interest rate hikes. 

The South Korean won was flat, while the Singapore dollar shed 0.1%. 

The Indian rupee tread water after data on Monday showed Indian consumer price index (CPI) inflation eased as expected in January, but remained well above the Reserve Bank of India’s 4% annual target.

Dollar edges higher, CPI data awaited for rate cut cues 

The dollar index and dollar index futures rose 0.1% each in Asian trade, and remained within sight of a recent three-month high as traders looked to later interest rate cuts this year.

CPI data is expected to show inflation eased in January, but remained well above the Fed’s 2% annual target- which gives the bank little impetus to begin cutting interest rates early.

The dollar had shot up in late-January as traders began sharply scaling back bets that the Fed will begin cutting interest rates in March and May. The CME Fedwatch tool showed markets pricing in an only 45.4% chance for a 25 basis point cut in June.