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Asia FX muted, dollar advances with inflation, Fed on tap

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Investing.com– Most Asian currencies moved little on Tuesday, while the dollar crept higher in anticipation of key inflation data that is likely to factor into the outlook for U.S. interest rates.

Most regional currencies were nursing some losses over the past week as risk appetite was battered by concerns over worsening global economic conditions.

But anticipation of U.S. interest rate cuts helped limit overall losses, while also stemming the dollar’s advance. But the greenback caught some bids this week, amid positioning before Wednesday’s inflation reading.

Dollar advances with CPI data, Fed meeting in sight

The dollar index and dollar index futures both rose about 0.1% in Asian trade, after clocking strong gains on Monday.

Traders favored the greenback as risk sentiment worsened last week, while anticipation of key consumer price index inflation data, due on Wednesday, also spurred flows into the dollar.

Wednesday’s reading is expected to show inflation cooled further in August. The reading also comes just a week before a Federal Reserve meeting, where the central bank is widely expected to cut interest rates by 25 basis points.

Lower rates are expected to dent the dollar and spur some flows into risk-driven Asian markets. But the full extent of such a rotation will depend on just by how much the Fed cuts rates this year.

Broader Asian currencies kept to a tight range. The Japanese yen’s USDJPY pair hovered around 143.22 yen, having fallen sharply last week amid increased safe haven demand for the yen.

The Australian dollar’s AUDUSD pair fell slightly following some weak economic readings from the country. A private survey showed consumer confidence worsened in early-September and remained close to lows seen during the 2020 COVID-19 pandemic, amid growing concerns over an economic slowdown.

The South Korean won’s USDKRW pair rose 0.2%, while the Singapore dollar’s USDSGD pair was flat. The Indian rupee’s USDINR pair also traded sideways, but was in sight of record highs.

Chinese yuan weakens after mixed trade data

The Chinese yuan’s USDCNY pair rose 0.1%, with the currency losing some ground after mixed trade data from the country.

China’s trade balance unexpectedly grew in August, as the country’s export industries largely shrugged off headwinds from trade restrictions imposed by the U.S. and its allies.

But China’s imports grew much less than expected, raising concerns over sluggish local demand.

The yuan was already nursing some losses over the past week, following a string of underwhelming Chinese economic readings.

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