Asia FX treads water, dollar steady as U.S. inflation looms

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Investing.com-- Most Asian currencies moved little on Tuesday, while the dollar steadied close to a six-month peak as investors hunkered down before data showing a potential rise in U.S. inflation. 

Markets were also holding out for more economic cues from China, as recent data showed some improvement in inflation and loan activity through August. But the overall outlook for the Chinese economy still deteriorated, with a Reuters poll now forecasting 2023 GDP growth of 5%- in line with China’s official forecast, but lower than forecasts from investment banks. 

The yuan remained resilient through this, with the Chinese currency rebounding from a near 10-month low this week as the People’s Bank rolled out a series of strong daily midpoints. The bank was also seen intervening in currency markets to buoy the yuan.

Uncertainty over China kept the Australian dollar trading in a tight range on Tuesday, while a private survey also showed that Australian consumer sentiment deteriorated further in early-September. 

Other China-exposed currencies moved little, with the South Korean won and Taiwan dollar both trading less than 0.1% in either direction.

The Indian rupee fell slightly after rebounding from near record lows on Monday. Markets were also awaiting consumer inflation readings from the country, which are expected to show continued resilience in prices through August.

Japanese yen rebounds amid hawkish BOJ talk 

The Japanese yen steadied on Tuesday after rebounding sharply from a near 10-month low overnight. The currency was boosted chiefly by comments from Bank of Japan Governor Kazuo Ueda, who said that an end to the BOJ’s negative interest rates could be close. 

Ueda said that the BOJ’s 2% inflation target was within sight, which would give the bank more impetus to begin raising rates after nearly a decade of ultra-loose monetary policy.

But while such a scenario bodes well for the yen, the currency was still nursing steep losses for the year, hit chiefly by a widening gap between local and international interest rates.

Worsening risk sentiment and fears of a BOJ pivot also diminished the yen’s appeal for carry trade this year. 

Dollar steady near 6-month high, CPI in focus 

The dollar moved little in Asian trade on Tuesday, seeing some consolidation after racing to a near six-month peak in recent sessions. 

The dollar index and dollar index futures both steadied in the low-to-mid 104s, after briefly breaching 105 last week.

Focus is squarely on U.S. consumer inflation data due on Wednesday, which is expected to set the tone for a Federal Reserve meeting next week. Inflation is expected to have risen at a faster pace in August from July.

Any signs of sticky inflation gives the Fed more headroom to either raise rates further, or keep them higher for longer. While the central bank is widely expected to keep rates on hold in September, it is also expected to keep them at over 20-year highs until at least mid-2025.