Asian foreign-exchange markets showed divergent moves on Thursday as the U.S. dollar eased from an 18-month high following hotter-than-expected U.S. consumer-price inflation, and investors weighed the implications for upcoming central bank decisions.
The dollar index fell 0.6% to 101.96 by 23:50 ET (03:50 GMT), reversing some of the 0.4% gains seen on Wednesday after the inflation report.
U.S. inflation and market response
U.S. consumer prices rose 3.7% year-on-year in September, up from 3.4% in August and above the economists' forecast of 3.6%. Core consumer prices increased 2.6% on the year, slightly higher than the 2.5% expected. Those readings revived concern that the Federal Reserve may need additional policy tightening.
Even so, several Fed officials signalled caution. Vice Chair Michelle Bowman and San Francisco Fed President Mary Daly both suggested policymakers could seek a clearer signal on inflation before moving to tighten policy further. After an initial market repricing that raised the odds of a rate hike at the Fed's October 27-28 meeting, traders scaled back those expectations as Treasury yields eased and officials' comments dampened immediate hawkish bets.
Market participants were awaiting U.S. producer price and retail sales reports alongside further Fed commentary for added clarity on the policy path.
Regional FX movers and local developments
Japan's currency firmed, with the USD/JPY pair down about 0.4%, after Finance Minister Satsuki Katayama reiterated warnings against excessive currency moves. That official caution appeared to strengthen the yen versus the dollar during Asian trading.
China's yuan remained largely unchanged in both onshore USD/CNY and offshore USD/CNH trading, showing limited reaction to the U.S. data.
Across the region, the South Korean won was the worst performer as the USD/KRW pair rose around 0.8%, a move that coincided with pressure on regional equity markets.
In Australia, the AUD/USD exchange rate slipped roughly 0.3% after domestic employment unexpectedly fell in September. Data showed a decline of 39,300 jobs versus expectations for an increase of 20,000, while the unemployment rate held at 4.7%, its highest level in five years. The employment drop was concentrated in part-time positions, which fell by 73,700. Those figures diminished expectations for further tightening by the Reserve Bank of Australia; markets priced in about a 90% chance that the central bank would leave its cash rate unchanged at 4.6% in November.
Elsewhere, the Indian rupee saw USD/INR edge up 0.1%, while the Singapore dollar strengthened versus the dollar with USD/SGD down about 0.2%.
Outlook
With U.S. inflation surprising to the upside, market attention is focused on incoming U.S. economic data and any further public remarks from Fed officials that could influence rate expectations. In Asia, currency moves appear to be driven by a mix of domestic economic releases, intervention warnings and shifts in risk sentiment reflected in regional equity markets.