Asian currencies mostly stayed the same on Wednesday as investors digested a cautious message from the Federal Reserve and waited for new U.S. data later in the week.
Chair Jerome Powell’s speech focused on the risks of growth and inflation on both sides. He did not suggest that rate cuts would happen more quickly, which kept the dollar strong and regional currencies stable.
During Asia hours, the Japanese yen, Korean won, Singapore dollar, and Chinese yuan all moved in narrow bands. This showed that the market was content to wait after Powell’s comments.
Trading desks said that there wasn’t much going on in the region and that traders weren’t willing to make big bets on the direction of the market before the next report on U.S. inflation.
A mix of Asian pairs showed small, mostly 0.1% type moves that showed how people were waiting and seeing.
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The Australian dollar was an outlier; it went up after new data showed that consumer prices rose 3.0% year over year in August, the fastest pace in a year and a little bit higher than expected.
The move brought back up questions about how quickly the Reserve Bank of Australia can go from cutting rates last month to a more comfortable easing path.
The Australian Bureau of Statistics released the data, which showed that the headline rate rose from 2.8% in July.
Aussie pops as prices rise quickly.
A hotter-than-expected print lowers the chances of another RBA cut in the near future and makes investors rethink the policy glide path into the end of the year.
The Australian dollar rose while Australian government bond futures fell as traders cut back on their dovish positions.
Some desks also said that core measures were sending mixed signals, which makes the policy debate more complicated but doesn’t change the fact that disinflation isn’t a straight line yet.
The surprise in Australia is more important than just the day’s tick-by-tick moves. When the Aussie dollar is stronger, commodity prices tend to be more stable. Australia is a major supplier to Asia’s industrial cycle.
If the RBA takes longer to ease than other central banks, rate differences can help the currency at the edges. This can change the costs of hedging for North American companies that do business in Asia-Pacific.
It also serves as a reminder that global disinflation is not uniform, which can make central banks more cautious and make incoming data more valuable.
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The Indian rupee stayed close to a record low in other parts of the region because importers and foreign banks wanted dollars more than anything else, which may have been due to central bank support.
The currency stayed stable throughout the day, which was in line with the overall pattern of limited Asian moves, even though local news continued to hurt sentiment.
The focus now turns to the release of the U.S. core PCE price index on Friday, which is the Fed’s preferred measure of inflation.
A softer print would bring back bets on a more active Fed easing cycle in the fourth quarter, while a firmer print could back up Powell’s caution and keep the dollar strong.
Until then, Asia FX will probably stay in tight ranges, and the Australian dollar will keep going up as long as the latest CPI impulse lasts.
Because Powell doesn’t want to make any promises ahead of time, policymakers can respond to changing data. That message has been in line with a risk-management strategy that takes into account a cooler job market and inflation that hasn’t fully returned to target yet.
For currency markets, this means that they prefer range trading to trend chasing, with sudden spikes in volatility when unexpected data comes out, like Australia’s CPI.
If core U.S. inflation stays stable, the dollar can drop and ease pressure on Asia. If it doesn’t, the easiest way to go is for the dollar to get stronger and for some currencies to be stronger than others, like the Aussie on domestic drivers.
For this week, at least, the next leg is likely to be based on data tape rather than what central banks say.
