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Asia FX edges lower as dollar steadies after two-day drop

Asia FX edges lower as dollar steadies after two-day drop
© Reuters.– Most Asian currencies fell slightly on Wednesday with markets remaining risk averse ahead of key economic readings this week, while the dollar steadied after steep losses in the past two sessions.

Weak and data saw the dollar pull back sharply from a near three-month high on Tuesday, as markets bet that the Federal Reserve will have limited economic headroom to keep raising interest rates. 

But a string of U.S. and Chinese economic readings are due in the coming weeks, keeping traders largely averse to making big bets ahead of more cues on the world’s largest economies.

This notion weighed particularly on risk-heavy Asian currencies, with most regional units slipping back into negative territory on Wednesday. The fell 0.2% ahead of key (PMI) data on Thursday, while the shed 0.2% with and readings on tap.

Bank of Japan board member Naoki Tamura said that the bank could consider ending its ultra-dovish policy by early-2024, given that inflation has remained comfortably above its target range for nearly a year. Such a scenario bodes well for the yen, which was trading near nine-month lows on a widening gulf between local and U.S. interest rates.

The fell 0.1%, while the fell 0.2%, with a reading on due on Thursday. The also lost 0.2%, with data due on Thursday.

Australian dollar slides on weak CPI

The was among the worst performers in Asia on Wednesday, falling as much as 0.5% after (CPI) inflation data read weaker than expected for July.

Easing inflation gives the (RBA) less impetus to keep raising interest rates, which in turn makes the Aussie appear less attractive. The bank hiked rates by a cumulative 400 basis points over the past year, as it moved to curb sticky inflation.

Other economic readings also showed that Australia’s economy was cooling along with inflation, with down more than expected in July. 

Dollar steadies with data deluge on tap

The and rose 0.1% each in Asian trade, recovering marginally from a 0.5% tumble in the prior session.

More U.S. economic data is on tap this week, with a revised reading on due later on Wednesday. (PCE), the Fed’s preferred inflation gauge, is due on Thursday, while August data is due on Friday.

Any signs of cooling U.S. inflation and labor activity points to the Fed having less headroom to keep raising interest rates. But given that the bank is expected to keep rates higher for longer, Asian currencies are expected to see little relief in the near-term. 

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