Most Asian currencies kept to a tight range on Wednesday, as did the dollar, as traders fretted over increased expectations of U.S. interest rate cuts and key upcoming inflation data this week.
The Chinese yuan weakened slightly after inflation data for August showed disinflation remained squarely in play, heralding continued weakness in Asia’s largest economy.
Broader Asian currencies were a mixed bag, but saw some strength over the past week as rising bets on lower U.S. interest rates pulled the dollar to seven-week lows. But the dollar found some strength ahead of key U.S. inflation data that is likely to factor into rate expectations.
Chinese yuan edges lower on weak August inflation
The Chinese yuan’s USD/CNY pair rose 0.1% on Wednesday, losing some ground after a series of strong fixings pushed the currency to a near 10-month high.
Chinese consumer price index inflation shrank by a bigger-than-expected 0.4% in August, indicating that private spending and local demand was faltering as support from Beijing’s subsidies ran dry.
Producer price index inflation shrank 2.8% as expected, and marked a 35th consecutive month of contraction.
Wednesday’s data showed a disinflationary trend in China remained squarely in play, as heightened economic uncertainty and pressure from U.S. tariffs weighed on the economy.
The reading also underscored the need for more stimulus measures from Beijing to support growth.
The yuan was still sitting on stellar gains over the past month on support from Beijing, with analysts viewing the move as being aimed at encouraging more exports to the country.
But any more stimulative measures from Beijing, including monetary support, are likely to undermine the yuan.
Asia FX muted, dollar steadies ahead of inflation test
Broader Asian currencies kept to a tight range on Wednesday. The Japanese yen’s USD/JPY pair hovered around 147.45 yen, steadying after whipsawing on the abrupt resignation of Japanese Prime Minister Shigeru Ishiba earlier this week.
The Australian dollar’s AUD/USD pair rose 0.2%, taking support from stronger commodity prices. Oil prices rose amid heightened geopolitical tensions in the Middle East, while copper prices rose on the closure of a key mine in Indonesia, which could weigh on global supplies.
The Singapore dollar’s USD/SGD pair was flat, while the Indian rupee’s USD/INR pair fell 0.1% from near record highs after Trump said trade talks between Washington and New Delhi were set to continue, and that he would speak with Prime Minister Narendra Modi soon.
But India remained subject to 50% U.S. tariffs, with a report from Reuters showing Trump calling for 100% tariffs against the country over its purchases of Russian oil.
The South Korean won’s USD/KRW pair fell 0.1%.
The dollar index and dollar index futures moved little in Asian trade, steadying from some overnight gains. But the greenback remained close to seven-week lows amid growing conviction that the Fed will cut interest rates next week.
Markets are pricing in a 95.3% chance for a 25 basis point cut and a 4.7% chance for a 50 bps cut during the Fed’s September 16-17 meeting, CME Fedwatch showed.
But key U.S. inflation data for August will test rate cut bets this week. PPI inflation is due later on Wednesday, while CPI inflation data is due on Thursday.
August’s inflation data will be closely watched for any signs of an increase in price pressures, given that a bulk of Trump’s trade tariffs took effect last month.
