Anna 
Asian currencies largely adhered to a narrow trading range on Tuesday, experiencing some respite as the dollar encountered profit-taking ahead of crucial inflation data that is poised to offer insights into potential interest rate cuts in 2024.
The beginning of the year witnessed regional currencies facing weakness, fueled by uncertainties surrounding the possibility of early interest rate cuts by the Federal Reserve. This uncertainty was amplified by data indicating resilience in the U.S. labor market, diminishing the urgency for the Fed to initiate policy loosening measures promptly.
Despite the modest relief observed in Asian currencies this week, their overall performance for 2024 has been predominantly lower, following a lukewarm showing in 2023. Market participants remain cautious ahead of various inflation and economic indicators from Asia scheduled for the week, which have restrained significant buying into regional currencies.
The Japanese yen saw a 0.4% rise as data revealed that inflation in Tokyo approached the Bank of Japan’s 2% annual target range in December. The Bank of Japan has communicated its intent to tighten its ultra-dovish policy once the 2% target is attained. However, the yen grappled with substantial losses in the initial week of 2024, as market participants speculated that reconstruction efforts following a devastating earthquake in central Japan might postpone the Bank of Japan’s policy pivot.
The Australian dollar experienced a marginal increase following data indicating a larger-than-expected surge in retail sales in November, foreshadowing potential strength in the upcoming Consumer Price Index (CPI) inflation reading scheduled for Wednesday.
Conversely, the Chinese yuan declined by 0.1%, reflecting persistently subdued sentiment toward China. Anticipation surrounding Friday’s inflation data is expected to unveil a continued deflationary trend, accompanied by trade data indicating persistent weakness in its export engines.
The South Korean won exhibited stability ahead of a Bank of Korea meeting later in the week, where the central bank is widely anticipated to maintain steady interest rates.
The Indian rupee remained subdued following central bank intervention that facilitated a sharp recovery from near record lows over the past week. Indian Consumer Price Index (CPI) data due on Friday is anticipated to reveal further easing in inflation.
The dollar, after retreating from three-week highs, maintained a stable position in Asian trade on Tuesday. Investors engaged in profit-taking, yet the greenback retained a substantial portion of its recent gains. Key focus remains on the Consumer Price Index (CPI) data scheduled for Thursday, which is expected to show a mild increase in inflation, casting doubt on early Fed rate-cut predictions for March 2024. Federal Reserve officials, including Atlanta Fed President Raphael Bostic, pushed back on expectations for early policy easing, emphasizing the importance of maintaining a cautious stance amidst prevailing economic conditions. Bostic anticipates a more modest 50 basis point rate reduction in 2024, contrasting with the more optimistic market expectations for this year.
