July 10 2024: Most Asian currencies traded within a narrow range on Wednesday as the dollar regained some strength following Federal Reserve Chair Jerome Powell’s testimony, which provided no direct signals on interest rate cuts.
The New Zealand dollar emerged as the day’s worst performer after the Reserve Bank of New Zealand (RBNZ) adopted a dovish stance during its meeting.
Dollar Steadies Post-Powell Testimony; CPI Data Awaited
The dollar index and dollar index futures continued to recover from recent losses, steadying in Asian trading after Powell highlighted cooling labor market conditions and progress in reducing inflation. However, he emphasized that any future rate cuts would depend on economic data and reiterated the Fed’s commitment to achieving its 2% inflation target.
Despite Powell’s comments, traders largely maintained their bets on a rate cut in September, which had previously weakened the dollar. Nonetheless, the greenback found some support as Powell’s statements turned the market’s attention to the upcoming consumer price index (CPI) inflation data, expected on Thursday. The CPI reading is anticipated to show that inflation remained persistent in June.
Kiwi Sinks as RBNZ Adopts Dovish Tone
The New Zealand dollar fell sharply, with the NZD/USD pair dropping 0.5%. The decline followed the RBNZ’s decision to keep interest rates steady while noting progress in bringing inflation back within its 1% to 3% annual range. The central bank also indicated the possibility of loosening policy further if inflation continues to ease, prompting traders to bet on at least one rate cut by the RBNZ in 2024, especially if inflation cools more than expected.
Yen and Yuan Struggle Amid Mixed Inflation Data
The Japanese yen remained under pressure, with the USD/JPY pair rising 0.1%, nearing its recent 38-year highs. Japanese producer price index (PPI) inflation data revealed that while factory inflation picked up in June, it remained relatively weak, casting doubt on the Bank of Japan’s ability to continue tightening policy.
Similarly, the Chinese yuan weakened, with the USD/CNY pair edging closer to highs last seen in November. June’s Chinese CPI inflation data showed a contraction, indicating a lack of consumer confidence and raising questions about the strength of the country’s economic recovery. However, Chinese PPI inflation improved, shrinking at its slowest pace since February 2023, though disinflation trends persisted.
Broader Asian Currencies
Other Asian currencies traded within a flat-to-low range, pressured by the stronger dollar. The Australian dollar’s AUD/USD pair edged up 0.1%, while the South Korean won’s USD/KRW pair increased by 0.2%. The Bank of Korea’s rate decision, due on Thursday, is expected to maintain the current rate.
Meanwhile, the Singapore dollar’s USD/SGD pair showed little movement, as did the Indian rupee’s USD/INR pair.