Asian currencies muted, Australian dollar drops on soft CPI

The Australian dollar’s AUD/USD pair dropped nearly 0.4% after Australia’s inflation reading came in below expectations

Asian currencies traded in narrow ranges on Wednesday, with the Australian dollar among the biggest losers after softer-than-expected inflation data.

Renewed hostilities between Iran and U.S. also kept investors cautious, supporting safe-haven demand and capping risk appetite across markets.

The Australian dollar’s AUD/USD pair dropped nearly 0.4% after Australia’s inflation reading came in below expectations, sharply reducing expectations for another RBA rate hike. The New Zealand dollar’s NZD/USD pair also traded modestly lower.

Meanwhile, the won’s USD/KRW pair declined 0.6%, leaving the currency trading near its strongest level since May 6.

Oil prices remained higher after Iran launched new attacks targeting U.S., ending the relative calm that had followed recent ceasefire efforts.

Attention will then shift to the Bank of Japan which is scheduled to announce monetary policy later this week.

The yuan’s onshore USD/CNY pair traded in a narrow range, with the offshore USD/CNH pair little changed.

The Philippine peso’s USD/PHP pair edged lower, while the Singapore dollar’s USD/SGD pair was broadly steady.

Rupiah also remained in focus after Bank Indonesia Governor Perry Warjiyo unexpectedly resigned earlier this week, raising questions about policy continuity.

Despite the leadership change, Citi strategist Rohit Garg said the bank still sees scope for the rupiah to strengthen, maintaining its constructive view on the currency through short USD/IDR positions.

Garg said recent weakness appeared to be driven more by speculation surrounding the governor’s departure than a deterioration in Indonesia’s underlying fundamentals. He added that the focus has now shifted to policymakers, who will need to reassure investors and maintain confidence in monetary policy continuity to prevent further pressure on the rupiah.

The Indian rupee’s USD/INR pair was little changed after recent gains, while the baht’s USD/THB pair and ringgit’s USD/MYR pair also traded in tight ranges.