Asia FX flat as dollar steadies on Powell comments; Kiwi sinks on dovish RBNZ

July 10, 2024 5:21 am– Most Asian currencies moved in a flat-to-low range on Wednesday as the dollar found some strength after Federal Reserve Chair Jerome Powell offered no direct cues on interest rate cuts.

The New Zealand dollar was the worst performer for the day after the Reserve Bank of New Zealand struck a somewhat dovish tone at its meeting. 

Dollar steadies after Powell testimony; CPI awaited 

The and recovered further from recent losses, steadying in Asian trade after Powell flagged cooling in the labor market and progress towards bringing down inflation. 

But the Fed Chair said that any reductions in interest rates will be largely dependent on data, and reiterated the Fed’s commitment to meeting its 2% inflation target.

Traders largely maintained bets on a September rate cut after Powell’s comments- bets that had battered the dollar in recent weeks. But the greenback found some support as Powell’s comments also put upcoming inflation data squarely in focus. 

The reading is due on Thursday and is expected to show inflation remained sticky in June. 

Kiwi sinks as RBNZ strikes dovish chord

The New Zealand dollar weakened on Wednesday, with the pair sinking 0.5%.

Losses in the kiwi came as the RBNZ and flagged progress in bringing inflation back to its 1% to 3% annual range. The central bank also said that it could loosen policy on further easing in inflation.

This saw traders ramp up bets that the RBNZ could cut rates at least once in 2024, especially if inflation cools more than expected.

Japanese yen, Chinese yuan grapple with mixed inflation

The Japanese yen remained fragile, with the pair rising 0.1% and coming back in sight of recent 38-year highs.

Japanese inflation data showed that while factory inflation picked up in June, it still remained relatively weak, furthering doubts over whether the Bank of Japan will have enough impetus to keep tightening policy.

The Chinese yuan was also weak, with the pair rising slightly back towards highs last seen in November. 

Chinese inflation shrank in June, reflecting little confidence to spend among consumers. This raised questions over just how much of an economic recovery was actually underway in the country. 

But Chinese inflation improved, shrinking at its slowest pace since February 2023. 

Still, Chinese disinflation largely remained in play.

Broader Asian currencies moved in a flat-to-low range, as strength in the dollar pressured regional markets. The Australian dollar’s pair rose 0.1%, while the South Korean won’s pair rose 0.2%. A Bank of Korea is due on Thursday, with the BOK likely to keep rates unchanged.

The Singapore dollar’s pair moved little, as did the Indian rupee’s pair.

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