Most Asian currencies weakened on Tuesday as light market participation during regional holidays coincided with modest dollar strength ahead of a bundle of U.S. economic indicators.
Holiday schedules contributed to thinner-than-normal trading conditions. China, Hong Kong, Taiwan, South Korea and Singapore were closed for Lunar New Year observances, and mainland Chinese markets are due to remain shuttered until next week. Thin U.S. trade volumes on Monday, a U.S. market holiday, further reduced available trading cues for Asian markets.
The dollar index and dollar index futures ticked higher in Asian trade, extending gains from the previous session. Market attention this week centers on U.S. releases that may help clarify economic momentum and monetary policy direction. Of particular note are the minutes from the Federal Reserve's January meeting, scheduled for Wednesday.
The Fed left interest rates unchanged at that meeting and signaled lingering risks to inflation and the labor market. Since then, payroll and consumer inflation readings have provided mixed indications on the pace of the U.S. economy. Additional data on industrial production and trade, due in coming days, are expected to add to the information set. The personal consumption expenditures price index for December - the Fed's preferred inflation gauge - is due on Friday and is widely expected to be a pivotal input to longer-term rate expectations.
Currency moves were uneven across the region. The USD/JPY pair fell 0.2%, a moderate recovery after the prior session's sharp losses. That prior weakness followed a fourth-quarter gross domestic product report that came in substantially below expectations, raising concerns about slowing Japanese growth and prompting expectations that Tokyo may consider additional stimulus measures. Reports that the Bank of Japan could lift interest rates as soon as April provided some support for the yen.
The Australian dollar slipped slightly after publication of the Reserve Bank of Australia's February meeting minutes. Those minutes showed policymakers remained uncommitted to further rate hikes after a 25 basis point increase, while underscoring caution about persistent Australian inflation and the prospect that renewed price pressures would likely bring additional tightening.
Offshore yuan trading saw USD/CNH edge up 0.1%, though the pair stayed close to near three-year lows. Currency pairs for Singapore and South Korea were largely unchanged in holiday-thinned markets, with USD/SGD and USD/KRW trading flat. The Indian rupee's USD/INR pair was described as flat overall, but it moved further above the 90 rupee level; the rupee showed little benefit from consumer inflation that came in stronger than expected last week.
Market context and what to watch
Thin liquidity due to wide-ranging regional market closures, combined with limited U.S. session activity after a Monday holiday, left Asian currency moves modest and sometimes erratic. The coming release schedule in the U.S. - notably the Fed minutes and the December PCE reading - is likely to be the primary driver of near-term currency volatility and positioning.
Given the limited information flow from Asia over the holiday period, U.S. economic signals will carry outsized influence on market direction until regional trading volumes normalize.