Investing.com — Most Asian currencies rose on Wednesday while the dollar fell as soft U.S. producer inflation raised hopes that a similar easing in consumer inflation will lead to deeper interest rate cuts.
The New Zealand dollar was an exception, posting steep losses after the Reserve Bank of New Zealand unexpectedly cut rates and said it was considering a bigger cut.
Improving market sentiment also limited the Japanese yen’s gains, although the currency retained much of its recent rally.
Dollar near seven-month low based on soft PPI data, CPI waited
Trading in Asia weakened slightly, continuing sharp overnight declines and coming close to an eight-month low earlier in August.
The losses in the dollar came after inflation data for July appeared softer than expected.
The results showed traders shifted their bets slightly to a 50 basis point cut in September, although markets were still pricing in the potential for a 25 basis point cut, it showed.
But the PPI reading gave hope that an inflation reading, due later on Wednesday, will also show that inflation eased in July, giving the Federal Reserve more impetus to start cutting rates.
Hopes for a rate cut also come amid growing concerns about an economic slowdown in the US, which markets expect will lead to further Fed easing.
In addition to the inflation data, figures will also be released this week.
The NZ dollar plummets after RBNZ cuts rates
The New Zealand dollar was the worst performer among broader Asian currencies on Wednesday, with the pair falling more than 1%.
The RBNZ, with Governor Adrian Orr stating that the bank had also considered a 50 basis point cut.
The RBNZ signaled progress towards its annual inflation target of 1% to 3%, and also noted market expectations that rates will fall by 100 basis points by mid-2025.
Broader Asian currencies added to dollar weakness and bets on rate cuts.
The Japanese yen pair remained stable after strong gains, although further yen strength was limited by improved risk appetite. Second-quarter data from Japan is expected on Thursday and is likely to play a role in the Bank of Japan’s plans to cut rates.
The Australian dollar pair fell slightly, reflecting Kiwi weakness, although the Aussie still posted strong gains last week against the hawkish Reserve Bank of Australia.
The Chinese yuan pair fell 0.1%, with the focus moving in and out of the country on Thursday.
The South Korean won pair and the Singapore dollar pair moved from flat to low, while the Indian rupee pair remained near record highs around 84 rupees.
