CPI data is due later in the day, and is expected to show that inflation eased slightly in November
Most Asian currencies kept to a tight range on Tuesday, while the dollar stabilised following recent gains as traders prepared ahead of key U.S. inflation data and a Fed meeting due in the coming weeks.
The dollar index and dollar index futures dropped marginally in Asian trade. But the dollar held above 104 against a basket of currencies, as uncertainty over the Fed’s plans to cut interest rates in 2024 drove some flows into the dollar.
CPI data is due later in the day, and is expected to show that inflation eased slightly in November. But traders remained wary of a stickier reading, particularly after nonfarm payrolls data released last week beat expectations.
While the Fed is widely expected to hold rates steady on Wednesday, markets grew more uncertain over when the bank could begin cutting rates in 2024. The strong payrolls data saw Fed Fund traders scaling back bets on a March 2024 rate cut.
This induced some strength in the dollar, and pressured Asian currencies.
The Japanese yen advanced 0.4 per cent on Tuesday, but was nursing sharp losses from the previous session after media reports showed that the Bank of Japan had no intention of moving away from its ultra-loose policies in the near-term.
While the bank has still signalled some intent to eventually hike interest rates from negative levels, the reports indicated that such a move was likely to be later, rather than sooner.
Data on Tuesday showed a slight increase in Japanese PPI in November.
Among other Asian currencies, the Chinese yuan was flat as a string of strong midpoint fixes by the People’s Bank of China helped the currency weather data showing a sustained disinflationary trend in China.
But this led to a wider gap between the onshore and offshore yuan. The offshore yuan traded near 7.1875, while the onshore yuan was at 7.1766 to the dollar.
Weak inflation data raised more concerns over a persistent economic slowdown in China, and also dented sentiment towards wider Asian markets. The Australian dollar added 0.4 per cent on Tuesday after pulling back in the previous session on concerns over China.
Reserve Bank of Australia Governor Michele Bullock said the bank will maintain a cautious approach with monetary policy, after warning on potential inflation risks earlier this month.
The South Korean won was flat after pulling back in the earlier session, while the Singapore dollar and Malaysian ringgit also failed to make progress.
