Asia FX weakens, dollar creeps higher before inflation data

Most Asian currencies crept lower on Tuesday, while the dollar clocked small gains before key U.S. inflation data that is expected to determine the path of monetary policy.

Concerns over China also weighed on regional sentiment, as data showed a further slowdown in lending activity in the country through October. This saw the yuan fall 0.1%, coming close to the 7.3 level against the dollar.

Chinese readings on industrial production and fixed asset investment are also due this week.

The Japanese yen hovered around its weakest level in a year against the greenback, although further losses in the currency were stifled by Japanese authorities once again warning that they will intervene in foreign exchange markets.

The yen saw a sharp reversal from recent losses on Monday, spurring some speculation that the government may have already intervened to support the currency. Weakness in the currency- which was close to a 32-year low, had triggered billions of dollars worth of intervention by the government in mid-to-late 2022.

Broader Asian currencies retreated, although trading volumes were somewhat dull on account of several regional holidays.

The South Korean won lost 0.5%, while the Australian dollar fell 0.1%, tracking data that showed further deterioration in Australian consumer sentiment in early-November.

The reading presents a weak outlook for the Australian economy, particularly that retail spending will slow during the shopping-heavy holiday season.

The Indian rupee traded sideways in holiday trade, hovering near record lows after data showed Indian consumer price index (CPI) inflation grew more than expected in October. But the chance of more interest rate hikes by the Reserve Bank of India remained slim, given that the bank had signaled an extended pause in its rate hike cycle.

The Thai baht was the worst performer in Southeast Asia, falling 0.4%, while the Malaysian ringgit lost 0.3%.

Dollar inches higher with CPI data in focus
The dollar index and dollar index futures both rose 0.1% in Asian trade, steadying after rebounding from six-week lows over the past week.

Markets were focused squarely on U.S. CPI data for October, due later in the day. The reading is expected to show some cooling after two straight months of beating expectations.

The CPI data will be pivotal for markets this week, given that it comes after several Fed officials warned that sticky inflation could see the central bank hike rates even further.

Any signs of sticky inflation is likely to ramp up bets on more rate hikes by the Fed- a scenario that bodes well for the dollar but poorly for Asian markets.

Most Asian currencies were trading lower for 2023 due to fears of higher U.S. rates.