Asia FX muted amid weak Chinese data; dollar steady as Fed meeting looms

Investing.com-- Most Asian currencies kept to a tight range on Monday with the yuan muted after more weak economic prints from China, while the dollar steadied before a widely expected interest rate cut by the Federal Reserve this week. 

Regional currencies logged some strength in recent weeks as traders dialled up bets on a September rate cut by the Fed, especially following several weak readings on the U.S. economy.

But caution over the scale of the Fed’s easing, plus the central bank’s outlook on future cuts, limited overall gains in Asian markets.

The Indian rupee was a laggard performer, hitting record lows last week amid heightened concerns over more U.S. trade tariffs against New Delhi, over its purchase of Russian oil. The USD/INR pair remained well above 88 rupees on Monday.

The Japanese yen’s USD/JPY pair fell 0.2% in holiday-thinned trade, while the Australian dollar’s AUD/USD pair added 0.2%. The Aussie was a standout performer last week, as it benefited from rising commodity prices. 

The Singapore dollar’s USD/SGD pair was flat, while the South Korean won’s USDKRW pair fell 0.4%. 

Chinese yuan muted amid weak data; US trade talks begin

The Chinese yuan’s USD/CNY pair fell slightly on Monday and remained close to a 10-month low hit last week.

Weak Chinese economic data continued to pile up. Industrial production and retail sales both grew less than expected in August, as did fixed asset investment.

China’s unemployment rate also unexpectedly grew to 5.3% in August, data showed on Monday. The prints followed weak inflation data from last week, which showed Chinese disinflation remaining squarely in play.

The readings highlighted persistent weakness in the Chinese economy, especially as still-high U.S. trade tariffs eroded the country’s key exports. Weakness in local demand also came as support from Beijing’s sweeping consumer subsidies ran dry– a trend that is likely to draw out more government stimulus.

But the yuan was sitting on stellar gains through August and September, with a series of strong midpoint fixings from Beijing contributing to this trend. China was seen propping up the yuan to make its exports appear more attractive, as the country grappled with U.S. trade tariffs.

High-level trade talks between Washington and Beijing began on Sunday, as the two seek to hash out a more lasting trade truce. But semiconductors appeared to be a major point of contention, as Beijing over the weekend opened a probe into U.S. trade policy over chips. 

Dollar steady as Fed rate cut looms 

The dollar index and dollar index futures both steadied in Asian trade on Monday after logging mild gains last week.

But the greenback remained under pressure from market conviction that the Fed will cut interest rates this week. Markets are pricing in a 96.4% chance the Fed will cut rates by 25 basis points during its September 16-17 meeting, and a 3.6% chance for a 50 bps cut, CME Fedwatch showed. 

Bets on a rate cut were boosted by data showing a sustained deterioration in the U.S. labor market, while inflation in August did not rise as sharply as markets were fearing.

But markets still remained uncertain over just what the Fed had in store for its future easing plans.