Most Asian currencies rose on Wednesday, while the dollar fell after a weak reading on U.S. producer inflation raised hopes that a similar easing in consumer inflation would lead to deeper interest rate cuts.
The New Zealand dollar was an exception, posting sharp losses after the Reserve Bank of New Zealand unexpectedly cut interest rates and said it was considering a bigger cut.
Improved market sentiment also helped limit the yen’s gains, although the currency held onto most of its recent gains.
Dollar nears 7-month low on weak PPI data, CPI rise expected
Gold prices fell slightly in Asian trading, continuing sharp declines overnight and approaching an eight-month low hit earlier in August.
The losses in the dollar came after inflation data came in lower than expected in July.
The reading showed that traders shifted their bets slightly toward a 50 basis point cut in September, although markets were still pricing in a 25 basis point cut.
But the PPI reading raised hopes that the inflation reading, due later Wednesday, will show inflation also eased in July, giving the Federal Reserve more impetus to start cutting interest rates.
Hopes for a rate cut also come amid growing concerns about a slowing US economy, which markets are betting will call for more easing from the Federal Reserve.
In addition to inflation data, readings are also due this week.
New Zealand dollar falls after RBNZ cuts interest rates
The New Zealand dollar was the worst performer among the broader Asian currencies on Wednesday, with the pair falling more than 1%.
The Reserve Bank of New Zealand announced that the bank had also considered cutting interest rates by 50 basis points.
The Reserve Bank of New Zealand pointed to progress in inflation towards its annual target of 1% to 3%, and also pointed to market expectations that interest rates will be cut by 100 basis points by mid-2025.
Broader Asian currencies rose, tracking a weaker dollar and bets on interest rate cuts.
The Japanese yen steadied after strong overnight gains, although further strength in the yen was limited by improved risk appetite. Japan’s second-quarter data is due on Thursday, and is likely to weigh on the Bank of Japan’s plans to cut interest rates.
The Australian dollar pair fell slightly, tracking the weakness of the New Zealand dollar, although the Australian dollar is still sitting on strong gains over the past week thanks to the hawkish Reserve Bank of Australia policy.
The Chinese yuan pair fell 0.1%, with focus shifting to Chinese economic readings due out on Thursday.
The South Korean Won and the Singapore Dollar pair moved in a flat to lower range, while the Indian Rupee pair remained near its record highs, near Rs 84.