SINGAPORE, Nov 14 — Most Asian currencies firmed slightly today, shrugging off weak China data as the US dollar traded cautiously ahead of inflation data due this week that could set the tone for impending US interest rate hikes.
The US dollar index, which tracks the greenback against six major currencies, was down 0.02 per cent despite a rise in US Treasury yields, usually a source of strength for the dollar.
“The key data that market is looking out for is the US inflation numbers that are due tomorrow. They will be important not for the December rate hike as from all accounts it is a done deal but more for the potential path of Fed rate hikes over the course of 2018," said Khoon Goh, head of Asia research at ANZ.
A Reuters poll forecast the US consumer price index would rise 0.1 per cent in October after advancing 0.5 per cent in September.
A Federal Reserve official said yesterday he expects to back an interest rate hike next month despite caution over low inflation because US monetary policy needs to be positioned to deal with future economic shocks.
The US dollar was also pressured by worries over possible delays to US President Donald Trump's tax plans as Congressional Republicans pushed ahead yesterday with their tax code overhaul, but risks remain with major intraparty disputes unsettled.
“If we do get a movement on that (US tax reform) and if it passes before Christmas it would be supportive of the dollar. But at this point in time, the markets are taking the view that perhaps there could be some slippage into the early part of next year, which is why we are seeing the dollar ease off a bit,” said Khoon Goh.
The Korean won led the gains among the regional currencies as it rose 0.3 per cent, while the Philippine peso climbed to its highest since Oct. 6, on track for fifth consecutive session of gains.
“We are still seeing equity inflows in Asia and that is helping to prop up the Asian currencies.”
Foreign investors returned to Asian equities in October, following three consecutive months of retreat, lured back by the region's strong economic growth and a rise in corporate earnings.
October data from seven Asian exchanges showed foreign investors bought a net total of about US$2.5 billion (RM10.47 billion), the highest in four months.
The Taiwan dollar, Singapore dollar and Malaysian ringgit also gained ground marginally.
The Chinese yuan traded flat after data yesterday showed the economy cooled further last month, with industrial output, fixed asset investment and retail sales missing expectations.
The Indian rupee weakened 0.1 per cent after retail inflation rose to a seven-month high in October, driven by food and fuel inflation. India's annual consumer inflation in October increased to 3.58 per cent from a year earlier, government data showed yesterday.
“The bigger-than-expected rise in India’s CPI inflation for October will lead to more bond outflows and undermine the rupee afterwards. Rising oil prices could widen the nation’s hovering current account deficit in addition to spurring India’s CPI inflation,” Scotiabank said in a note.
The central bank of India is scheduled to hold a policy review on Dec 6. — Reuters