Most Asian currencies remained in a narrow range on Tuesday amid caution ahead of a series of economic signals this week, with the yen steady amid uncertainty over a potential interest rate hike by the Bank of Japan.
The dollar recovered slightly as expectations of a Federal Reserve meeting grew, sparking some inflows into the greenback, especially as traders speculated on whether the central bank would signal any interest rate cuts.
Broader Asian currencies remained on the back foot, as concerns about slowing Chinese economic growth and uncertainty over the US presidential race also weighed on risk sentiment.
Japanese Yen Steady, Focus on BOJ
The Japanese yen steadied on Tuesday after rising sharply against the dollar over the past two weeks. The pair hovered around 154 yen in morning trade.
Attention focused squarely on the interest rate, with analysts divided over whether the central bank would keep it or raise it by 10 to 15 basis points.
But aside from interest rates, the Bank of Japan is widely expected to deliver hawkish signals by signaling the end of its quantitative easing policy. The central bank said at its June meeting that it would outline its plans to phase out its asset-buying programs in July.
Any hawkish signals from the Bank of Japan are likely to boost the yen further. Bank of America analysts say the USD/JPY pair could fall to 145 if the BOJ adopts a hawkish stance.
Dollar steady, gains some ground ahead of Fed rate decision
U.S. stocks settled on Tuesday after seeing some strength this week, with Wednesday squarely in focus.
The central bank is widely expected to keep interest rates unchanged, but any signals on when it will start cutting rates will be closely watched.
Weak inflation readings and dovish comments from Federal Reserve officials have prompted markets to ramp up bets that the Fed will cut interest rates by 25 basis points in September.
But markets are also pricing in a small possibility of a similar cut on Wednesday.
However, the rate cut does not bode well for the dollar, which has been suffering a sharp decline for most of July on the idea.
Broader Asian currencies moved in a flat-to-low range. The Chinese yuan was little moved, remaining close to an eight-month high amid ongoing concerns about slowing economic growth in the country.
Data for July is due out on Wednesday and is expected to provide further clues about business activity in the country.
The Australian dollar rose 0.1% but also suffered sharp losses in July as the currency was hit by falling commodity prices.
The South Korean won rose 0.2%, while the Singapore dollar remained flat.
The Indian rupee steadied after briefly touching record highs this week, as suspected intervention by the Reserve Bank of India gave the rupee some strength.
