Anticipation of key economic readings from China also kept regional markets on edge, while concerns of an escalation in the Middle East conflict kept risk appetite dull
Most Asian currencies pulled back on Tuesday, while the dollar gained as traders remained largely risk-averse before more cues on when the Federal Reserve could begin cutting interest rates.
Anticipation of key economic readings from China also kept regional markets on edge, while concerns of an escalation in the Middle East conflict kept risk appetite dull.
The Japanese yen dropped 0.2% and crossed the 146 level to the dollar. Data on Tuesday that showed producer price index (PPI) inflation remained soft in December, coming just a few days before consumer price index (CPI) data, which is also expected to show inflation remaining languid.
Softer inflation gives the BoJ less impetus to begin tightening its ultra-dovish policy, which bodes poorly for the yen.
Broader Asian currencies also pulled back. The Australian dollar- a key indicator of regional risk appetite- dropped 0.5% tracking weakness in commodity prices. Data also showed that Australian consumer sentiment worsened in early-January, amid concerns over high interest rates and inflation.
The South Korean won slipped 0.7% as data showed a sustained reduction in export and import prices. The Indian rupee shed 0.1% after data on Monday showed wholesale price index inflation grew less than expected in December.
The Taiwan dollar slipped 0.6%, amid increased volatility after the incumbent Democratic Progressive Party secured a third successive term in the recent Presidential elections. But the development is expected to invite more ire from China.
The dollar index and dollar index futures advanced 0.5% and 0.3%, respectively, in Asian trade on Tuesday. The dollar index was also trading at a small premium to futures, suggesting higher near-term demand for the greenback.
Traders were now awaiting more hints on the Fed and the U.S. economy, with Fed Governor Christopher Waller set to speak later on Tuesday.
On Wednesday, U.S. retail sales and industrial production data are set to offer more cues on the world’s biggest economy, with any signs of cooling lending more credence to bets on early interest rate cuts.
But markets seemed to have slightly pared bets that the Fed will begin cutting rates by as soon as March 2024, as per the CME Fedwatch tool.
The Chinese yuan dropped 0.2% to a more than one-month low against the dollar, as traders remained largely averse to Chinese assets amid continued concerns over an economic recovery.
Focus was now squarely on fourth-quarter GDP data, due on Wednesday, for more cues on the economy. GDP is expected to have slightly surpassed the government’s 5% annual target for 2023.
