Investing.com — Most Asian currencies rose slightly on Tuesday as the recent rally in the dollar slowed, with the Japanese yen gaining some strength amid speculation about government intervention and interest rate hikes by the Bank of Japan.
But sentiment towards Asian markets remained fragile due to the possibility of a trade war between China and the West. While Chinese ministers met with German officials over tariffs on electric vehicle imports, Canada was seen joining the United States in potentially imposing restrictions on Beijing.
Broader expectations for headline inflation levels from the US and Japan also kept sentiment weak.
JPY firms, USDJPY declines from near 160
The yen gained some strength this week, with the pair retreating from levels that sparked government intervention in May.
The USD/JPY pair fell by 0.2% to 159.36 after rising to 159.9 on Monday. Japanese officials continued to warn that they would intervene in the event of “excessive” fluctuations in the yen.
Minutes from the Bank of Japan’s June meeting also provided some support for the yen, as some officials were seen raising the possibility of a rate hike in July.
The focus this week is on the key, which is scheduled for Friday. The reading is expected to provide further signals on the path of inflation, which is one of the Bank of Japan’s main considerations in tightening policy.
The Chinese yuan is fragile, and the US dollar against the Chinese yuan reaches a 7-month high
The Chinese yuan fell on Tuesday, with the pair rising to a seven-month high following a weak reform by the People’s Bank of China.
Sentiment toward China has been largely influenced by the prospect of a trade war with the West, after Chinese officials signaled such a possibility in the face of hefty European tariffs on electric vehicle imports.
Canada was also seen considering restrictions on Chinese electric vehicles, which could heighten concerns about the trade war.
Traders are now watching the dialogue between Chinese and German officials regarding tariffs.
The dollar declines, and expectations of a rise in inflation in personal consumption expenditures
The index fell slightly in Asian trading, extending its decline overnight as it gave up some gains from a strong rally over the past week.
The focus this week was squarely on the upcoming data. This reading is the Fed’s preferred measure of inflation, and is likely to influence the bank’s expectations about interest rates.
Concerns about China and anticipation of personal consumption expenditures data kept most Asian currencies trading mostly flat, although a weaker dollar helped them stem recent losses.
The Australian dollar rose by 0.1%, with focus also on Wednesday’s reading.
The South Korean won pair was flat, as was the Singapore dollar pair.
The Indian rupee pair has been trading flat, but trading well off its record highs last week.
