Most Asian currencies remained in a tight range on Thursday after posting strong gains overnight after weaker-than-expected U.S. consumer inflation data put the dollar near a seven-month low.
Positive economic readings from Japan, Australia and to some extent China also boosted sentiment towards regional markets.
The dollar index hovered around 102 in Asian trading, remaining close to its lowest level in seven months.
Data on Wednesday came in slightly lower than expected, increasing bets on a September rate cut. But traders were now more biased toward a 25 basis point cut than a 50 basis point cut, as consumer price index data showed a monthly increase.
The concept has capped gains in most Asian currencies, although broader risk-sensitive markets, especially stocks, have risen sharply.
Japanese Yen Steady as Q2 GDP Beats Expectations
The Japanese yen steadied on Thursday after a mid-day performance overnight, as improved risk sentiment reduced demand for the safe-haven currency. The pair hovered around the 147.25 level.
Data showed that Japan’s economy grew more than expected in the second quarter, thanks to a recovery in Japanese wages.
The reading is in line with the Bank of Japan’s expectations that improving wages will boost the Japanese economy, giving the central bank more room to continue raising interest rates this year.
Such a scenario would herald further strength in the yen, which has already been on a meteoric rise against the dollar over the past month.
Chinese Yuan Falls Amid Mixed Economic Signals
The Chinese yuan fell on Thursday, with the pair rising 0.2% after a batch of readings presented a mixed picture for the Chinese economy.
China’s economy grew faster than expected, raising some confidence that consumer spending and inflation are improving.
But China’s economic growth was lower than expected, and growth in China unexpectedly rose to 4.2%.
The readings showed that while some policy measures taken by Beijing have helped support consumer spending, the overall economy remains under pressure.
Australian Dollar Rises on Strong Jobs Data
The Australian dollar was the best performer in Asia, with the pair rising 0.5% after data showed strong growth in Australian GDP for the second straight month in July.
The reading indicated that Australia’s labour market was active despite a broader slowdown in the economy, which could support inflation and give the Reserve Bank of Australia more room to keep interest rates high.
Traders have speculated that the Reserve Bank of Australia may raise interest rates further to calm the business sector, after its governor Michelle Bullock warned last week that the central bank was open to raising interest rates further to combat stubborn inflation.
Broader Asian currencies were weak amid holiday markets in South Korea and India.
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