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Asia FX flat, dollar dips ahead of CPI data, Fed minutes

Published 12/04/2023, 03:20 pm
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By Ambar Warrick

Investing.com -- Most Asian currencies moved little on Wednesday, while the dollar retreated further as markets awaited more cues on monetary policy from key inflation data and the minutes of the Federal Reserve’s March meeting due later in the day.

A warning on a potential recession from Minneapolis Fed President Neel Kashkari also kept sentiment subdued, although he also warned that higher inflation was likely to be worse for the jobs market.

The dollar took little support from Kashkari’s comments, with the dollar index and dollar index futures both down about 0.2%. But futures were trading at a lower level than the index, indicating that investors are likely positioning for more weakness in the greenback.

Still, Asian currencies saw few bids on this notion, as anticipation of U.S. consumer price index (CPI) inflation data kept traders wary of risk-driven assets. The Chinese yuan was largely flat at 6.8871 against the dollar, while the Japanese yen fell 0.1%.

Japanese data also showed that producer price index inflation eased for a second consecutive month in March.

The South Korean won lost 0.2%, while the Australian dollar was among the few outperformers, rising 0.4% as it recovered from steep losses.

The U.S. CPI data is expected to show that overall inflation eased further in March from the prior month. But core CPI, which excludes volatile food and fuel prices, is expected to remain stubbornly high.

Focus is also on the minutes of the Fed’s March meeting, due later on Wednesday. While the Fed had vowed to keep raising interest rates further, the recent collapse of several U.S. banks and a swathe of weak economic readings saw markets doubt just how much headroom the central bank has to keep raising interest rates.

Wednesday’s inflation reading is also expected to provide more insight into how much further the Fed needs to tighten policy.

Some Asian economic readings were also in focus this week. The Indian rupee was flat ahead of local CPI data due later on Wednesday, which is expected to show that inflation eased substantially through March.

The reading also comes shortly after the Reserve Bank of India unexpectedly held interest rates, stating that inflation had likely peaked.

Chinese trade data is also due later this week, after a reading on Tuesday showed that inflation in the country continued to trend below expectations.

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