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Asia FX slides as dollar, yields rise ahead of inflation data

Published 08/07/2023, 12:51 AM
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Investing.com -- Most Asian currencies fell on Monday, while the dollar and Treasury yields firmed ahead of key inflation data from the world’s largest economies, due later in the week.

While the greenback logged steep losses on Friday, following mixed payrolls data, it firmed in Asian trade as markets hunkered down ahead of U.S. inflation data. Treasury yields also rose on Monday, extending gains after Fitch cut the U.S. sovereign rating last week.

The dollar index and dollar index futures rose 0.1% each.

Strength in the dollar pressured most Asian currencies, as did concerns over a stronger U.S. inflation reading this week. Consumer price index inflation is expected to have increased slightly in July from the prior month, potentially putting more pressure on the Federal Reserve to raise interest rates.

Higher oil prices and robust consumer spending is expected to spur a higher inflation reading for July.

Chinese yuan slides ahead of trade, inflation data

The Chinese yuan was the worst performer on Monday, tumbling 0.7% to the dollar even as the People’s Bank of China set a stronger-than-expected daily midpoint.

Focus this week is also on Chinese inflation data, with consumer inflation set to remain sluggish in July, while producer inflation is likely to have contracted further.

Trade data, due on Tuesday, is expected to show a continued decline in Chinese exports and imports.

Markets were also focused on more cues from the Chinese government on its plans to stimulate economic growth, after officials offered few concrete details on their planned spending measures.

Analysts warned that any more measures to boost economic growth will likely increase China’s fiscal spending and ramp up government debt.

Broader Asian currencies retreated, with the South Korean won down 0.1%, while the Japanese yen fell 0.3%, even as some members of the Bank of Japan warned that inflation could overshoot expectations this year.

Higher inflation is likely to pressure the BOJ into pivoting away from its ultra-dovish stance, which is expected to benefit the yen.

The Australian dollar edged higher, while the Indian rupee fell slightly ahead of a Reserve Bank meeting this week. The RBI is widely expected to keep interest rates on hold until March 2024.

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