Investing.com — Most Asian currencies fell on Wednesday as the dollar recouped recent losses, while the Australian dollar was the outlier as weak inflation data prompted a more hawkish stance from the Reserve Bank of Australia.
Still, the dollar's recovery was limited, as were losses in regional markets, as traders remain optimistic that the Federal Reserve will cut interest rates next month. Inflation data due later this week is expected to give further clues about the likelihood of a rate cut.
Concerns about China have also strained sentiment in Asia after Canada imposed steep trade tariffs on China's electric vehicle sector.
Australian dollar nears eight-month high on rising CPI
The Australian dollar was the better performer among Asian currencies, rising 0.1% against the Australian dollar to near its highest level in eight months after the July consumer price index beat expectations.
Subsidies on electricity tariffs helped keep overall inflation in check, but higher food prices pushed it up by a slightly larger than expected 3.5%.
Underlying CPI fell from 4% to 3.7%, but remains well above the Reserve Bank of Australia's target of 2% to 3%.
Wednesday's announcement raised speculation that a hawkish Reserve Bank of Australia (RBA) would keep interest rates high for an extended period or even raise them further as inflation remains elevated.
ANZ analysts said that despite the rise in inflation, it remained unlikely to change the RBA's current trajectory.
Dollar recovers from 13-month lows, awaiting PCE data
In Asian markets, the and rose 0.2% each, further recovering from 13-month lows hit earlier this week.
A series of dovish signals from Federal Reserve officials pushed the dollar lower and raised expectations of an interest rate cut in September.
Traders are split on whether to cut rates by 25 or 50 basis points, and recent signs of a cooling in the U.S. labor market have further strengthened the case for more rate cuts, fueling speculation the Fed could cut rates by as much as 100 basis points by the end of the year.
The focus this week is on data from the Fed's preferred inflation gauge to get more insight into when the central bank plans to start cutting interest rates.
Asian currencies were flat to trading lower. The Japanese yen rose 0.3 percent to 144.44 yen after dropping as low as 143.69 yen. The currency has received sustained support from expectations of further interest rate hikes by the Bank of Japan. Data due on Friday is likely to provide further clues.
The yuan strengthened 0.1% against the U.S. dollar amid continued fears of a trade war with Western countries after Canada followed the United States and the European Union in imposing trade tariffs on the electric vehicle sector, a move condemned by the Chinese government and which could lead to retaliatory measures.
The South Korean won rose 0.8 percent and the Singapore dollar rose 0.2 percent.
The Indian rupee stabilised after briefly testing the Rs 84 level, just shy of its record high.
