Asia FX weakens as dollar steadies with focus on rate cues; yen slides further

Investing.com-- Most Asian currencies weakened on Tuesday, while the dollar steadied as focus remained on just when the Federal Reserve will begin cutting interest rates.

Underperformance in the Japanese yen persisted as the currency continued to reverse a bulk of its gains made on the back of government intervention last week.

Focus was also on a Reserve Bank of Australia meeting where the central bank is widely expected to keep rates steady and offer up a more hawkish outlook amid sticky inflation.

Japanese yen weakens after intervention, USDJPY rises

Weakness in the Japanese yen persisted on Tuesday, with the USDJPY pair, which is inversely representative of yen strength, rising 0.4% and past the 154 level.

The currency pair had risen as far as 160 in late April, before apparent instances of government dollar selling saw the pair fall sharply to as low as 152.

But the yen struggled to retain any strength, given that the main factor behind its decline- a wide gap between U.S. and Japanese interest rates- remained largely in play.

Markets are now looking to more readings on Japanese inflation and wage growth to gauge whether the Bank of Japan will hike interest rates further this year, which is expected to offer some relief to the Japanese currency.

Australian dollar flat before RBA after weak retail sales

The Australian dollar’s AUDUSD pair moved little on Tuesday after weak retail sales data for the first quarter saw traders question just how hawkish a chord the RBA will strike.

Retail sales declined during the first quarter amid sticky inflation and high interest rates, indicating sustained weakness in consumer spending. This trend presents a muted outlook for inflation.

The RBA is widely expected to keep rates on hold later in the day, but is expected to offer some hawkish cues in the wake of a hotter-than-expected inflation reading for the first quarter.

Asia FX weakens as dollar steadies from recent losses

Broader Asian currencies fell slightly on Tuesday, as the dollar index and dollar index futures recovered a measure of last week’s losses.

Focus this week is on comments from several Fed officials on the path of interest rates, especially after softer-than-expected nonfarm payrolls data saw traders once again begin pricing in interest rate cuts by the central bank.

But this notion offered little support to Asian currencies, given that the Fed is still expected to begin cutting rates only by September.

The Chinese yuan’s USDCNY pair rose 0.2%, while the South Korean won’s USDKRW pair rose nearly 0.3%.

The Singapore dollar’s USDSGD pair rose 0.1%, while the Indian rupee’s USDINR pair rose marginally and was in sight of record highs hit in late-April.

This article first appeared in Investing.com