Asia FX muted, dollar fragile as CPI data boosts Sept rate cut bets

Investing.com-- Most Asian currencies moved little on Wednesday, while the dollar nursed overnight losses after mildly softer-than-expected consumer inflation data ramped up bets on a September interest rate cut. 

Regional currencies clocked some gains in the prior session, with a trade truce extension between the U.S. and China also helping to improve sentiment. But most currencies were seen running out of steam by Wednesday.

Markets still remained uncertain over the impact of U.S. trade tariffs on the global economy, while anticipation of more economic prints in the coming days also kept traders on edge. 

Still, weakness in the dollar afforded most regional currencies some gains this week.

The Chinese yuan’s USDCNY pair was flat after falling earlier this week on the U.S. and China announcing a 90-day extension in their temporary trade agreement. U.S. officials said talks with Beijing will pick up in the coming months.

The South Korean won’s USDKRW pair fell 0.1%, while the Singapore dollar’s USDSGD pair was flat.

The Australian dollar’s AUDUSD pair steadied after rising on Tuesday despite a 25 basis point interest rate cut by the Reserve Bank of Australia. The RBA also flagged more potential cuts on softening inflation and growth. 

The Indian rupee’s USDINR pair hovered near record highs, seeing little relief from the prospect of as much as 50% U.S. tariffs on New Delhi. 

Dollar soft as mild CPI boosts Sept rate cut bets 

The dollar index and dollar index futures moved little in Asian trade after falling 0.4% apiece on Tuesday. 

The greenback was battered by increased bets that the Federal Reserve will cut interest rates in September, especially as headline consumer price index inflation data read mildly weaker than expected for July.

While core CPI inflation was seen picking up slightly more than expected, it did little to deter bets on a September easing.

Markets were seen pricing in a 93.6% chance for a 25 basis point cut in September, up from 83.8% from a day earlier, CME Fedwatch showed. 

Japanese yen softens on weak PPI inflation

The Japanese yen’s USDJPY pair rose 0.2% to 148.08 yen, seeing little strength despite weakness in the dollar.

The yen was hit by soft producer price index inflation data, which sank to a 11-month low in July. 

While the PPI data was slightly stronger than expected, it still spurred increased uncertainty over whether the Bank of Japan will be able to raise interest rates further.

The BOJ signaled that it will continue to raise interest rates in line with higher inflation. But Japanese inflation has steadily declined in recent months.