Asia FX weakens, dollar rises with more rate, inflation cues on tap

Investing.com-- Most Asian currencies fell on Monday, while the dollar regained some ground as investors hunkered down before a barrage of cues on interest rates and U.S. inflation due later this week. 

Anticipation of several regional economic cues- particularly Japanese inflation and Chinese purchasing managers index data- also kept traders on edge, especially amid growing anxiety over slowing growth in the region’s largest economies.

Japanese yen hovers above 150, CPI data awaited 

The yen moved little on Monday, but hovered well above the 150 level to the dollar and remained close to three-month lows.

Focus this week was squarely on Japanese consumer price index (CPI) data for January, due on Tuesday. The reading is expected to show core inflation falling within the Bank of Japan’s 2% annual target range, giving the central bank even less impetus to begin aggressively tightening policy.

This notion has been a key weight on the yen in recent months, especially with U.S. rates likely to remain higher for longer. But further losses in the yen were limited by the threat of potential government intervention, given that levels above 150 have attracted intervention in the past. 

Dollar firms with PCE inflation, Fed cues in focus 

The dollar index and dollar index futures both rose 0.1% in Asian trade on Monday, after clocking their first weekly loss in 2024.

But the greenback remained within sight of three-month highs, as a chorus of Federal Reserve officials warned that the bank was in no hurry to begin trimming interest rates early, especially as inflation remained sticky. 

PCE price index data- which is the Fed’s preferred inflation gauge- is expected to provide more cues on inflation this week. Several more Fed officials are also expected to speak this week and likely reiterate the outlook of higher-for-longer interest rates.

Such a scenario bodes poorly for Asian markets, given that it limits the appeal of high-yielding, high-risk assets. Most regional currencies fell on Monday, with the Australian dollar and South Korean won both losing 0.1% each. Australian CPI data for January is also due this week. 

The Indian rupee was flat, while the Singapore dollar shed 0.1%.

Chinese yuan treads water before PMI test 

The Chinese yuan moved little on Monday following a stronger-than-expected midpoint fix from the People’s Bank. 

Sentiment towards Chinese markets remained largely on edge before more cues on China’s economy, from purchasing managers index data for February, due later this week.

Concerns over a slowing economic recovery were a key weight on the yuan in recent months, keeping the currency in sight of a three-month low.