Across Asian markets, currencies showed little movement on Tuesday, lacking enthusiasm from a softer dollar, as traders exercised caution awaiting further cues regarding U.S. inflation dynamics and insights from the Federal Reserve later in the week.
Of particular concern was the Chinese yuan, which lingered close to its weakest level in four months following significant downward pressure last week. Despite efforts by the People’s Bank of China (PBOC), the currency seemed to find scant support, raising questions about the effectiveness of intervention measures.
The Chinese yuan weakened further, with the USDCNY pair climbing 0.1% to reach 7.2178 – its highest point since mid-November. Meanwhile, the offshore yuan’s USDCNH pair dipped 0.1%, though it remained comfortably above the crucial 7.2 level.
This persistent weakness in the yuan occurred despite the PBOC setting a midpoint stronger than anticipated and instructing local banks to engage in yuan buying and dollar selling activities in the open market.
Recent declines in the yuan stemmed from worsening sentiments surrounding China’s economic recovery, coupled with hints from the PBOC about potential interest rate cuts to stimulate growth. Such developments cast a shadow over the yuan, making it one of the underperforming currencies among Asian peers over the last two years.
However, continued depreciation of the yuan could prompt more aggressive intervention from the PBOC, reflecting Beijing’s unease with the currency’s weakness.
Elsewhere, the Japanese yen stabilized after recent government warnings about its weakening trend. Despite the Bank of Japan’s first rate hike in 17 years, the USDJPY pair remained near four-month highs, prompting concerns and comments from top Japanese officials, which helped the yen regain some ground.
Looking ahead, market attention turned to upcoming consumer inflation data from Tokyo, expected later in the week, for further insights into currency movements.
Amidst limited immediate triggers, broader Asian currencies showed subdued activity. The Australian dollar saw a slight uptick against the USD, while the South Korean won also edged higher. Conversely, the Singapore dollar and the Indian rupee experienced marginal declines or stabilization after earlier volatility.
In broader markets, the dollar index and dollar index futures slipped during Asian trading, following overnight losses. However, anticipation remained high regarding key inflation data and speeches by Federal Reserve officials later this week, factors expected to heavily influence the dollar’s trajectory. The release of the PCE price index, the Fed’s preferred inflation gauge, on Friday, is anticipated to provide further clarity on the central bank’s stance on interest rates, alongside insights from speeches by Chair Jerome Powell and other Fed members.