Investing.com — Most Asian currencies rose slightly on Tuesday after the dollar’s recent rally cooled, with the Japanese yen gaining some ground amid speculation about government intervention and interest rate hikes by the Bank of Japan.
But sentiment towards Asian markets remained fragile due to the prospect of a trade war between China and the West. As Chinese ministers met with German officials over tariffs on electric vehicle imports, Canada was seen joining the US in potentially imposing restrictions on Beijing.
Broader expectations of important inflation figures from the US and Japan also kept sentiment weak.
Japanese Yen Companies, USDJPY Retreat from Near 160
The yen gained some ground this week, with the pair retreating from levels that had prompted government intervention in May.
The USDJPY pair fell 0.2% to 159.36 after rising to 159.9 on Monday. Japanese officials continued to warn that they would intervene in the event of “excessive” volatility in the yen.
The minutes of the BOJ’s June meeting also provided some support for the yen, as some officials raised the possibility of a rate hike in July.
The focus this week is on Key , which is due Friday. The outcome is expected to provide more clues about the inflation path, which is an important consideration for the BOJ as it tightens policy.
Chinese Yuan Vulnerable, USDCNY Hits Seven-Month High
The Chinese yuan weakened on Tuesday, with the pair rising to a seven-month high following a weak midpoint fix from the People’s Bank of China.
Sentiment toward China was largely soured by the prospect of a trade war with the West, after Chinese officials noted such a possibility in light of high European tariffs on electric vehicles.
Canada was also seen considering curbing Chinese electric vehicles, potentially adding to concerns about a trade war.
Traders now watched the dialogue between Chinese and German officials over the tariffs.
The dollar eases, PCE inflation waited
Trading in Asia fell slightly, extending their overnight decline as they gave up some gains from a strong rally last week.
The focus this week was entirely on upcoming data. This outcome is the Federal Reserve’s favorite inflation gauge and will likely play a role in the bank’s interest rate outlook.
Concerns about China and anticipation of the PCE data kept trading in most Asian currencies largely steady, although dollar weakness helped them stem recent losses.
The Australian dollar pair rose 0.1%, also focusing on a reading on Wednesday.
The South Korean won pair remained flat, as did that of the Singapore dollar.
The Indian rupee pair traded flat but hit record highs last week.
