Most Asian currencies experienced modest gains on Tuesday, finding relief in the mild decline of the dollar ahead of a crucial inflation reading that is expected to provide insights into U.S. interest rate trends later in the week.
Despite the slight rise, regional currencies saw limited gains, largely maintaining positions within a trading range established over the past two months. The U.S. dollar remained close to a recent three-month high.
The Japanese yen stood out as one of the stronger performers, climbing 0.2% from its weakest level in over three months following a slightly higher-than-expected consumer price index inflation reading for January. This development added to the growing expectations that the Bank of Japan (BOJ) might raise interest rates as early as April.
The BOJ, anticipated to conclude its yield curve control and negative interest rate policies this year, might find motivation to expedite these changes due to persistent inflation. However, economic challenges in Japan, including an unexpected recession in Q4 2023, may influence the timing of the BOJ’s policy adjustments.
In broader terms, other Asian currencies saw marginal gains for the day, with various economic readings scheduled across the region. The Australian dollar rose 0.1% ahead of the monthly Consumer Price Index (CPI) inflation reading on Wednesday.
Conversely, the New Zealand dollar slipped 0.2% in anticipation of a Reserve Bank meeting, where interest rates are expected to remain unchanged, accompanied by potential indications of future hikes amidst sticky inflation.
The Chinese yuan held steady in anticipation of key Purchasing Managers Index (PMI) readings scheduled for Friday, offering insights into Asia’s largest economy. Meanwhile, the South Korean won and Singapore dollar experienced slight gains, and the Indian rupee traded flat but well above record-low levels.
In terms of the U.S. dollar, both the dollar index and dollar index futures dipped 0.1% each in Asian trade on Tuesday. The greenback’s retreat came ahead of significant economic data, including the Personal Consumption Expenditures (PCE) price index on Thursday, considered the Federal Reserve’s preferred inflation gauge. Additionally, a second reading on fourth-quarter U.S. GDP is scheduled for Wednesday. The U.S. Federal Reserve’s indication of a measured approach to interest rate adjustments earlier in the year has implications for the dollar and regional currencies.