Asian currencies weakened against the dollar on Monday as caution prevailed ahead of central bank meetings in a week packed with releases of important data, with the main focus on the US Federal Reserve’s rate decision.
The Thai baht declined 0.3% against the dollar, leading losses among Asian peers, while equities in the region were largely mixed, with shares in Shanghai skidding 0.4% lower.
The markets are eyeing US inflation data due Tuesday, a day before a US Fed interest rate decision. US core inflation is expected to rise 0.4% month-on-month and the headline by 0.2%, according to a poll by Reuters.
The Reserve Bank of Australia and Bank of Canada surprised markets last week by raising interest rates to curb persistently high inflation, fanning fears that the Federal Reserve might follow suit and take a hawkish stance in its June meeting.
Markets are pricing for a 73% probability the US central bank will stay put when it meets on June 13-14, according to CME FedWatch tool.
“The market has all but moved on to what happens in the following meeting in July. Given the economy’s slow but steady state of affairs, the chance of a hike in that meeting is non-trivial, in our view,” economists with DBS Bank said in a note.
Meetings of the US Fed, the European Central Bank (ECB) and the Bank of Japan (BOJ) will set the tone for the week, with markets looking for cues on the direction of interest rates.
Asian currencies inch higher on retreating Fed rate hike bets
The Indian rupee traded flat against the dollar, ahead of domestic inflation data due later in the day. Economists reckon consumer inflation rose by 4.42% in May, easing from 4.7% in April, a Reuters poll showed.
China’s yuan weakened to a six-month low against the dollar, with the People’s Bank of China (PBOC) due to roll over maturing policy loans.
A batch of 200 billion yuan ($28 billion) worth of medium-term policy loans is due to mature on Thursday, and the focus is on the rate at which they are rolled over.
“Lower funding costs for banks and PBOC Governor Yi Gang mentioning counter-cyclical measures have added to rate cut expectation,” said Frances Cheung, rates strategist at OCBC Bank.
Considering China’s post-pandemic recovery has begun to falter and recent disappointing domestic data, expectations for more PBOC easing have increased.
Elsewhere, the Turkish lira slid to a new low of 23.77 per dollar as investors awaited indications on policy moves after the appointment of a new central bank governor expected to raise rates.