The South Korean won emerged as the only major gainer on Tuesday amid muted Asian currencies as caution prevailed ahead of keenly awaited inflation data from the United States, which will pave the way for the interest rate outlook.
The won gained 0.5% against the dollar, hitting its highest in a week, while equity markets in Seoul were dragged down by heavyweight battery and chip manufacturers.
“The Korean won is playing catch-up to gains seen in the Japanese yen and the Chinese yuan, while the dollar retreated,” said Christopher Wong, currency strategist at OCBC.
The US inflation report on Wednesday is one of the key data points that markets participants will be watching closely in terms of further prospects for the US dollar.
“A lower-than-expected inflation may slow USD’s rise and provide a breather for Asian FX, but the risk is a higher print that could potentially un-nerve risk sentiments, reinforcing market expectations for further rate hikes,” Wong said.
The Federal Reserve, which has left the door open to further interest rate hikes, has pledged to remain agile in its response to economic data.
Financial markets have baked in a pause at the conclusion of the Fed’s Sept. 19-20 monetary policy meeting, beyond which the path forward is less certain, according to CME’s FedWatch tool.
The Chinese yuan took a breather and was trading almost flat during the day, while the stock market in the world’s second largest economy was also more or less unchanged.
Chinese authorities in recent weeks have rolled out a series of measures, such as easing borrowing rules, to support the debt-riddled property sector.
“There are nascent signs of Chinese economic stabilization, but recent data can hardly be extrapolated to call a recovery yet,” Maybank analysts said in a note.
The greenback took a breather after falling the most in two months and was trading flat at 104.57.
The yen was slightly weaker following its strong advances in the previous session.
The Thai baht fell 0.1% as traders exercised caution after the country’s new Prime Minister’s policy agenda was opposed in parliament.
Shares in Bangkok, however, gained 0.3%, whereas stock markets in Indonesia and Malaysia fell 0.3% and 0.4%, respectively.