Asia FX Weases As Yuan Slips; Dollar firm amid bets on lower interest rate cut by Investing.com

Investing.com– Most Asian currencies fell on Tuesday, with the Chinese yuan weakening sharply as onshore trade resumed after a week-long holiday.

The dollar remained within sight of seven-week highs amid growing bets on a slower pace of interest rate cuts by the Federal Reserve – a trend that also weighed on most regional currencies.

The Japanese yen was an outlier, with the pair down 0.3% as it clawed back some of the steep gains seen in the past week. The data looks steady and has helped the yen.

The dollar edge falls amid bets on a smaller rate cut; expected inflation

And both fell about 0.2 percent each in Asian trade, retreating slightly from seven-week highs hit last week.

The greenback was mainly boosted by stronger-than-expected data, which favored bets that the Fed would cut interest rates by a narrower margin in the coming months.

Traders were seen pricing in an almost 81% chance the Fed will cut rates by 25 basis points in November and an almost 19% chance interest rates will be left unchanged.

The focus has now turned to the Fed’s September meeting on Wednesday for more clues on monetary policy. The Fed cut rates by 50 bps during the meeting, but signaled a data-driven approach to future cuts.

To that end, inflation data due later this week is likely to factor in interest rate expectations.

Chinese yuan slips after week-long hiatus

The Chinese yuan was Asia’s worst performer on Tuesday, with the onshore pair up 0.7 percent as trading resumed after a week.

Sentiment towards China has been boosted by a series of stimulus measures from Beijing, including lower interest rates, looser restrictions on the housing market and increased liquidity measures.

But increased liquidity and lower rates are putting more pressure on the yuan, especially as US interest rates are expected to remain higher.

Broader Asian currencies moved in a flat to lower range. The Australian dollar pair fell 0.3% after the Reserve Bank of Australia’s September meeting showed policymakers to consider possible interest rate cuts.

Separate data showed an improvement in Australia, on expectations of lower rates.

The South Korean won pair rose 0.3%, while the Singapore dollar pair was unchanged.

The Indian rupee pair hovered near record highs.