Most Asian currencies showed little movement in a flat-to-lower range on Monday, while the dollar stabilized amidst recent fluctuations as investors awaited upcoming U.S. inflation data for further guidance on interest rates.
The Chinese inflation data exerted pressure on the yuan, triggering mild weakness in other currencies exposed to China. The USDCNY pair rose 0.1% on Monday, reaching a two-week high, following mixed signals from Chinese inflation data released over the weekend. While consumer price index inflation exceeded expectations in April due to continued stimulus measures from Beijing, producer price index inflation declined for the 19th consecutive month, reflecting sluggish Chinese business activity and indicating ongoing challenges in bolstering economic growth.
Traders remained cautious about China amid reports of potential trade tariffs by the Biden administration, particularly targeting China’s electric vehicle sector, which could potentially reignite trade tensions between the two largest economies.
Other China-exposed currencies also experienced minor losses on Monday, with the Australian dollar’s AUDUSD pair declining by 0.1%, while the Singapore dollar’s USDSGD pair showed slight gains. The South Korean won’s USDKRW pair also fell by 0.1%.
The Japanese yen remained relatively stable on Monday, with the USDJPY pair hovering just below the 156 level. Attention remained focused on potential government intervention to support the currency, following previous instances earlier in May. Despite the government’s intervention to prevent the USDJPY pair from reaching 34-year highs above 160, analysts cautioned that further intervention could occur before reaching that threshold.
In Asian trade on Monday, the dollar index and dollar index futures showed minimal movement, with investors maintaining a predominantly bullish stance towards the greenback ahead of crucial U.S. inflation data later in the week. The CPI reading, scheduled for Wednesday, will be closely monitored as it is expected to influence the outlook for U.S. interest rates. Despite recent indications of a cooling U.S. economy, inflation is anticipated to remain resilient, contributing to the market’s uncertainty regarding the timing of potential interest rate cuts by the central bank.