Investing.com – Most Asian currencies firmed slightly on Tuesday as the dollar’s recent rally cooled and the Japanese yen strengthened slightly on speculation over government intervention and a rate hike by the Bank of Japan.
But sentiment towards Asian markets remained fragile due to the prospect of a trade war between China and the West. While Chinese ministers met with German officials over tariffs on electric vehicle imports, Canada was seen joining the US in potentially imposing restrictions on Beijing.
Wider expectations for key inflation figures from the US and Japan also contributed to lower sentiment.
Japanese yen, USDJPY pulls back from around 160
The yen has strengthened slightly this week, with the pair retreating from levels that prompted government intervention in May.
USDJPY fell 0.2% to 159.36 after rising to 159.9 on Monday. Japanese officials continued to warn that they would intervene if the yen became “excessive” in volatility.
Minutes from the Bank of Japan’s June meeting also provided some support for the yen, with some officials talking about the possibility of an interest rate hike in July.
This week the focus will be on key events due to take place on Friday. The data is expected to provide more signals on inflation dynamics, a key factor for the Bank of Japan in tightening policy.
Chinese Yuan fragile, USDCNY hits 7-month high
The Chinese yuan weakened on Tuesday, with the pair rising to a seven-month high following a weak midpoint fix by the People’s Bank of China.
Sentiment towards China has largely soured over the prospect of a trade war with the West after Chinese officials flagged the possibility in the face of high European import tariffs on electric vehicles.
Canada has also been seen considering restricting Chinese electric vehicles, potentially adding to fears of a trade war.
Traders were now watching a dialogue between Chinese and German officials regarding tariffs.
Dollar weakens, PCE inflation expected
and fell slightly in Asian trade, extending a one-day decline as they gave up some of the gains from last week’s strong gains.
This week the focus was solely on the upcoming data. The reading is the Federal Reserve’s preferred inflation indicator and will likely be factored into the bank’s interest rate outlook.
Concerns over China and the anticipation of PCE data kept most Asian currencies trading broadly steady, although dollar weakness helped them stem recent losses.
The Australian dollar rose 0.1%, with focus also on Wednesday’s report.
The South Korean won remained unchanged, as did the Singapore dollar.
The Indian Rupee pair was trading flat but traded below record highs last week.