Most Asian currencies traded in a flat-to-low range on Wednesday, with the dollar strengthening as markets awaited more cues on the U.S. economy and interest rates later in the week.
The New Zealand dollar was the weakest performer, sliding 1% to a near two-week low, after the Reserve Bank of New Zealand (RBNZ) struck a less hawkish tone during its meeting on Wednesday. While the RBNZ held interest rates steady at 5.5%, it signaled more progress in inflation moving towards its 1% to 3% annual target. The comments led traders to adjust expectations, with the likelihood of further rate hikes being largely priced out.
The Australian dollar also dipped 0.4% after consumer price index data showed inflation remaining at over two-year lows in January. However, the reading still remained above the Reserve Bank of Australia’s (RBA) 2% to 3% annual target, supporting the view that the RBA might keep rates higher for a longer duration.
The Japanese yen weakened further beyond the 150 level, limited by the prospect of early interest rate hikes and government intervention.
Other Asian currencies trended lower, with the Chinese yuan flat ahead of key purchasing managers index data for February, scheduled for release on Friday. The South Korean won lost 0.3%, while the Singapore dollar shed 0.1%. The Indian rupee steadied around 82.9 to the dollar, remaining within a recently-established trading range.
The dollar index and dollar index futures rose 0.1% each in Asian trade, as traders adjusted expectations of early interest rate cuts by the Federal Reserve. The focus for the week is on the PCE price index data, the Fed’s preferred inflation gauge, expected to show inflation remaining sticky in January. The reading is crucial for insights into the potential timing of rate adjustments by the central bank. Additionally, a second reading on fourth-quarter GDP is due later on Wednesday.