Asia FX muted, dollar dips from 1-year peak as rate cut bets persist

Investing.com– Most Asian currencies firmed slightly on Tuesday, while the dollar retreated further from recent one-year highs amid persistent bets that the Federal Reserve will cut interest rates in December. 

Regional markets were also bracing for more economic cues from China and Japan this week, as well as a swathe of purchasing managers index readings from major economies. 

Most Asian currencies were nursing steep losses through the past week, as strong U.S. inflation readings and less dovish statements from the Federal Reserve sparked some uncertainty over just how much interest rates will fall in the coming months. 

Donald Trump’s election win also saw traders pile en masse into the dollar, putting the greenback at a one-year high.

But the dollar index and dollar index futures fell 0.1% each on Tuesday, retreating further from recent peaks as markets held on to bets that rates will fall in the short-term.

Traders were seen pricing in a 59.8% chance for a 25 basis point cut in December, and a 40.2% chance rates will remain unchanged, CME Fedwatch showed.

This notion offered some relief to Asian markets, although the longer term outlook for rates still remained uncertain, especially in the face of a Trump presidency. 

Chinese yuan muted as LPR decision looms 

The Chinese yuan moved little on Tuesday, with the USDCNY pair remaining in sight of recent three-month highs. 

Focus this week is on an interest rate decision by the People’s Bank of China, although economists expect the central bank to leave its loan prime rate unchanged on Wednesday.

The PBOC had cut the rate in October by slightly more than expected, as it moved to further loosen monetary conditions and support local economic growth. Wednesday’s decision also comes after a slew of underwhelming stimulus measures from China, while recent economic readings showed little improvement. 

Japanese yen fragile ahead of CPI data

The Japanese yen firmed slightly on Tuesday with the USDJPY pair falling 0.4%. But the pair remained in sight of near four-month lows hit earlier in November, as a spike in the dollar dented the yen.

Japanese consumer inflation data is due this Friday and is set to offer more insight into interest rates in the country. The reading also comes after largely underwhelming gross domestic product data for the third quarter, which sparked questions over just how much headroom the Bank of Japan has to raise interest rates further.

Broader Asian currencies moved in a flat-to-low range. The Australian dollar’s AUDUSD pair rose 0.2%, as the minutes of the Reserve Bank of Australia’s recent meeting reiterated the central bank’s plans to keep interest rates unchanged in the near-term.

The Singapore dollar’s USDSGD pair was flat, as was the South Korean won’s USDKRW pair.

The Indian rupee’s USDINR pair was flat after hitting a series of record highs of over 84.6 rupees earlier in November, and remained in sight of those peaks.