Jan 16, 2024: On Tuesday, most Asian currencies experienced a decline, while the U.S. dollar saw gains as traders adopted a cautious stance while awaiting further indications of when the Federal Reserve might initiate interest rate cuts. Regional markets remained on edge, anticipating key economic data from China, and concerns about an escalation in the Middle East conflict subdued risk appetite. The Japanese yen weakened by 0.2%, crossing the 146 level against the dollar. The release of producer price index data in Japan, indicating soft inflation in December, adds to the narrative that the Bank of Japan has less motivation to tighten its ultra-dovish policy, negatively impacting the yen. Other Asian currencies followed suit, with the Australian dollar falling 0.5%, reflecting weakness in commodity prices. Additionally, Australian consumer sentiment worsened in early January due to concerns about high interest rates and inflation. The South Korean won slid by 0.7%, as data revealed a sustained reduction in export and import prices. The Indian rupee lost 0.1% following Monday’s data, which showed wholesale price index inflation growing less than expected in December. The Taiwan dollar also saw a decline of 0.6%, experiencing increased volatility after the Democratic Progressive Party secured a third consecutive term in the recent Presidential elections, inviting potential tensions with China.
The U.S. dollar strengthened in Asian trade on Tuesday, with both the dollar index and dollar index futures rising by 0.5% and 0.3%, respectively. The dollar index was trading at a small premium to futures, indicating heightened near-term demand for the greenback. Traders are now eagerly anticipating further cues on the Federal Reserve and the U.S. economy. Fed Governor Christopher Waller is scheduled to speak later on Tuesday, and on Wednesday, U.S. retail sales and industrial production readings are expected to provide more insights into the largest economy in the world. Any signs of economic cooling could lend more credibility to expectations of early interest rate cuts.