Asia FX edges lower, dollar steady before PPI, retail sales data

Asia FX edges lower, dollar steady before PPI, retail sales data

Regional currencies were still reeling from a stronger-than-expected U.S. consumer price index print earlier this week, which ramped up bets that the Federal Reserve will take its time in reducing interest rates.

The dollar index and dollar index futures steadied in Asian trade on Thursday after reversing some of their gains earlier this week.

Focus was largely on more inflation cues from producer price index and retail sales data, especially after Tuesday’s hotter-than-expected CPI print. 

The data also comes just days before a Fed meeting next week, where the central bank is widely expected to keep rates on hold and offer scant cues on when it plans to begin trimming rates. 

The Japanese yen, which had mostly outperformed its regional peers this week, relinquished a bulk of its gains on Wednesday and Thursday.

Negotiations between major Japanese employers and employee unions pointed to bumper increases in wages over the coming months- a trend that is likely to keep inflation underpinned in the coming months.

Sticky inflation and higher inflation are the two biggest considerations for the Bank of Japan to begin winding down its negative interest rates and yield curve control (YCC) policies- a scenario that bodes well for the yen.

The BOJ is set to meet next week, with media reports suggesting that an end to negative rates and YCC could come either then or during an April meeting. Recent signs of resilience in the Japanese economy also gave more credence to expectations of a less dovish BOJ.

But a former BOJ official said on Thursday that the bank will take its time in normalizing policy after ending its negative interest rate regime- indicating that Japanese interest rates will rise marginally this year. 

Broader Asian currencies trended lower as focus remained on the upcoming U.S. data. The Australian dollar fell 0.1 after strength in commodity prices pushed a currency to a near two-month high in recent sessions.

The Chinese yuan fell 0.1%, amid persistent doubts over an economic recovery in the country.

The South Korean won and Singapore dollar lost 0.2% and 0.1%, respectively, while the Indian rupee steadied after recovering sharply from the 83 level this month. 

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