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Investing.com-- Most Asian currencies moved in a flat-to-low range on Thursday as the Federal Reserve remained non-committal towards future interest rate cuts, while weak economic data from China also weighed.
The Japanese yen was an outlier, firming sharply after the Bank of Japan kept interest rates steady, but said that it will raise interest rates if inflation and economic growth pick up as forecast.
Strength in the dollar weighed on most regional units, as the greenback shot up to a two-month high in overnight trade after the Fed kept interest rates steady and flagged little intent to cut rates in the near-term.
The dollar slightly pared its overnight gains on Thursday, with the dollar index and dollar index futures falling 0.1% each.
Regional markets remained largely on edge over U.S. trade policies, especially as President Donald Trump flagged a 25% tariff rate on India. The rupee’s USDINR pair was flat.
The South Korean won’s USDKRW pair fell slightly after Trump also announced a trade deal with Seoul, which will see the Asian country subject to a 15% tariff.
Japanese yen firms as BOJ talks rate hikes
The Japanese yen’s USDJPY pair fell 0.5% after the BOJ left interest rates unchanged, as expected.
But the central bank hiked its consumer price index inflation and gross domestic product forecasts for the year, with core inflation now seen well above prior forecasts.
The central bank also warned that real interest rates still remained low, and that it will hike rates further if inflation and growth rise in line with its expectations.
Thursday’s hold was widely expected by markets, with the BOJ seen unlikely to act amid heightened political uncertainty in Japan after the ruling Liberal Democratic Party recently lost its majority.
But this uncertainty is expected to clear up later this year, with analysts now penciling in a greater chance for an October rate hike.
Chinese yuan flat after July PMI underwhelms
The Chinese yuan’s USDCNY pair moved little on Thursday after purchasing managers index data for July underwhelmed.
Manufacturing PMI shrank more than expected in July, as did non-manufacturing PMI, with the drop being attributed to the impact of extreme weather. Chinese Composite PMI barely grew for the month.
Domestic headwinds also largely offset the benefit of improving trade relations with the U.S., after Washington and Beijing slashed their respective trade tariffs earlier this year.
The reading highlighted the sustained headwinds faced by the Chinese economy, especially as Beijing struggles to shore up growth and private spending. China’s Politburo meeting, held on Wednesday, saw the government promising more stimulus measures with few details on the planned measures.
Broader Asian currencies moved little, with focus largely on Friday’s deadline for U.S. tariffs. The Singapore dollar’s USDSGD pair fell 0.2%, while the Australian dollar’s AUDUSD pair rose 0.3%, recouping a measure of overnight losses.