Most Asian currencies fell on Wednesday as the dollar clawed back more recent losses, while the Australian dollar was an outlier as firm inflation data bolstered the case for a hawkish Federal Reserve.
However, the US dollar’s recovery was limited, as were losses in regional markets, as traders remained optimistic about a rate cut by the Federal Reserve next month. Inflation data due later this week should provide further clues on a possible cut.
Concerns about China also kept sentiment toward Asia on edge, after Canada imposed steep trade tariffs on the country’s electric vehicle sector.
Australian Dollar at Near 8-Month High as CPI Holds
The Australian dollar was among the best performing currencies in Asia, with the pair rising 0.1% to its highest level in nearly eight months after stronger-than-expected consumer price index data for July.
Inflation in the United States rose 3.5%, slightly above expectations due to higher food prices, although subsidies on electricity costs helped lower overall inflation.
Core CPI fell to 3.7% from 4%, but is still well above the Reserve Bank of Australia’s target of 2% to 3%.
Wednesday’s reading has raised speculation about a hawkish Reserve Bank of Australia, as steady inflation will prompt the central bank to keep interest rates high for longer, or even raise them further.
Analysts at ANZ said that despite the higher inflation reading, it was unlikely to change the current path of the RBA.
Dollar recovers from 13-month lows, PCE data awaited
Gold and silver prices rose 0.2% each in Asian trading, recovering further from 13-month lows hit earlier this week.
The US dollar was hit hard by a series of dovish signals from Federal Reserve officials, which has spurred increased bets on a September interest rate cut.
Traders were divided over whether to cut rates by 25 or 50 basis points. Recent signs of a slowing U.S. labor market have bolstered the case for a bigger cut, and have raised speculation that the Fed could cut rates by as much as 100 basis points by the end of the year.
The focus this week is on the data – the Fed’s preferred measure of inflation – for more insight into the central bank’s plans to start cutting interest rates.
Broader Asian currencies moved in a range from flat to lower. The Japanese yen rose 0.3 percent to 144.44 yen after falling to a low of 143.69 yen, with the currency getting sustained support from expectations of a rate hike by the Bank of Japan. Data due on Friday should provide further clues.
The Chinese yuan rose 0.1% amid ongoing concerns about a trade war with the West, after Canada joined the United States and the European Union in imposing trade tariffs on the electric car sector. Beijing denounced the move and may introduce retaliatory measures.
The South Korean won rose 0.8%, while the Singapore dollar rose 0.2%.
The Indian Rupee pair stabilized after briefly testing the Rs 84 level, which was just below its record highs.