Asian Currencies Hold Steady as U.S. Dollar Gains Ahead of Key Inflation Data

On Tuesday, most Asian currencies showed little movement, while the U.S. dollar inched higher ahead of crucial U.S. inflation data that could impact interest rate decisions by the Federal Reserve.

Over the past week, regional currencies have been under pressure due to growing concerns over global economic conditions. However, speculation around potential U.S. interest rate cuts helped limit their losses and slowed the dollar’s upward momentum. This week, the greenback saw renewed interest, as investors positioned themselves ahead of Wednesday’s anticipated inflation report.

Dollar Strengthens Ahead of CPI Data and Fed Meeting

Both the U.S. Dollar Index and Dollar Index Futures rose by 0.1% during Tuesday’s Asian trading session, extending gains from Monday.

Risk sentiment deteriorated last week, driving traders towards the dollar. Anticipation surrounding Wednesday’s Consumer Price Index (CPI) report further fueled demand for the greenback. The CPI reading is expected to show a continued cooling of inflation for August, setting the stage for the Federal Reserve’s upcoming meeting.

The Fed is widely expected to lower interest rates by 25 basis points at the meeting. While rate cuts typically weaken the dollar, the degree to which this impacts Asian markets will depend on how much the Fed cuts rates throughout the rest of the year.

Asian Currencies Remain Range-bound

Most Asian currencies traded in a narrow range. The Japanese Yen (USD/JPY) hovered around 143.22, recovering from last week’s decline driven by increased safe-haven demand.

Australia’s dollar (AUD/USD) slipped slightly following weaker-than-expected economic data, including a survey that indicated a sharp drop in consumer confidence in early September, exacerbating fears of an economic slowdown.

South Korea’s Won (USD/KRW) rose 0.2%, while Singapore’s Dollar (USD/SGD) remained unchanged. The Indian Rupee (USD/INR) also traded flat, but hovered near record highs.

Chinese Yuan Declines Amid Mixed Trade Data

The Chinese Yuan (USD/CNY) slipped 0.1%, reacting to mixed trade data from China. While China’s trade surplus unexpectedly grew in August, driven by strong exports despite international trade restrictions, the country’s imports fell short of expectations, raising concerns over weak domestic demand.

The Yuan has been struggling, weighed down by disappointing economic data over the past week, as China grapples with economic uncertainty.