Investing.com — Most Asian currencies were little moved on Tuesday as the dollar treaded water ahead of key inflation data later in the day, while the Japanese yen continued to weaken ahead of more signals on the economy.
Sentiment towards regional currencies remained subdued after a major risk shift in markets last week, while an tapering carry trade also weighed on the yen.
Uncertainty about more economic signals from China also weighed heavily, amid ongoing concerns about a slowdown in the region’s largest economy.
Dollar stable with CPI data on tap
The and moved little in Asian trading, extending sluggish performance overnight as anticipation of inflation data deterred big bets.
The data, due Wednesday, is expected to show that inflation cooled slightly in July – a scenario that gives the Federal Reserve more room to cut rates.
Lower interest rates do not bode well for the dollar. Softer inflation could also lead to renewed concerns about a US recession, which could lead to even deeper Fed rate cuts.
Traders are divided over a 25 or 50 basis point cut by the Fed in September, with July inflation data likely to play a role in the decision.
In addition to the inflation data, there is also data available this week.
The Japanese yen weakens further, we await GDP data
Japanese yen weakness continued after some less aggressive statements from the Bank of Japan last week, with the pair rising 0.2% to 147.48 yen.
The pair had fallen to 141 yen last week due to increased demand for safe havens and a declining carry trade. But traders wondered how much room there was for the BOJ to raise rates further this year.
Data showed Japan’s factory inflation grew as expected in July.
Second-quarter data, due Thursday, is expected to play a role in the outlook for Japanese yields. Any sign of resilience in the economy, especially against the backdrop of higher wages, gives the BOJ more impetus to raise rates – a scenario that bodes well for the yen.
Broader Asian currencies were muted. The Chinese yuan weakened slightly, with the pair rising 0.1%. The figures will appear later this week.
The Australian dollar was among the few outliers, with the pair strengthening 0.2%. Westpac data showed a slight improvement in August.
The South Korean won pair rose 0.1%, while the Singapore dollar pair fell slightly.
The Indian rupee pair remained near record highs after showing a sharp decline in inflation through July on Monday.
