On Friday, the US dollar maintained its strength after a robust US consumer inflation report, reigniting the possibility that the Federal Reserve may need to maintain higher interest rates for an extended period. Meanwhile, the Chinese yuan, along with the Australian and New Zealand dollars, weathered a wave of disappointing consumer and producer price data from China. However, a slower decline in trade figures offered a glimmer of hope for stability.
The US dollar found support after Thursday’s data revealed that US consumer prices in September had risen due to a significant increase in rental costs. While there was a consistent moderation in underlying inflation pressures, which buoyed expectations that the Fed might not raise interest rates next month, the data did raise the likelihood of interest rates remaining elevated for some time.
David Doyle, Macquarie’s head of economics, noted, “CPI data for September reveal further challenges with the ‘last mile’ in pushing inflation persistently back towards the (Fed’s) 2% target.”
The dollar index, a gauge of the US currency against six major counterparts, slipped slightly to 106.38 during Asian trading hours, just off the previous day’s high of 106.6.
The dollar’s overnight strength led to a temporary retreat of the yen towards the sensitive 150-level it touched briefly last week. The exchange rate hovered at 149.62 yen per dollar, with traders monitoring the possibility of Japanese authorities intervening to support the currency should it weaken further.
Wei Liang Chang, foreign exchange and credit strategist at DBS, stated, “Dollar/yen remains restrained below 150 amid concerns that the authorities could lean against excessive JPY weakness.”
The euro gained nearly 0.2% against the dollar, reaching $1.0549, after experiencing a drop against the dollar earlier. Sterling also traded more than 0.2% higher at $1.2202.
Investors also processed Chinese producer and consumer price data that showed deflationary pressures were somewhat stronger than anticipated.
Rob Carnell, regional head of research in the Asia-Pacific region at ING, commented, “What we’ve got is a fairly weak growth story (from China), and that’s weighing on the price numbers.” He suggested that the Chinese government might face pressure to offer additional support to the economy, although there could be limitations.
Earlier in the week, Bloomberg News reported that China is considering increasing its budget deficit for 2023 as the government prepares to roll out a new round of stimulus to help achieve the official growth target.
In September, China’s trade data revealed that both exports and imports had shrunk at a slower pace for the second consecutive month, which provided some encouragement to authorities.
The offshore Chinese yuan remained relatively stable against the US dollar at $7.3061 following the data release.
The Australian dollar, often seen as a proxy for Chinese economic performance, was at $0.6317. The New Zealand dollar dipped 0.2% to $0.5915.
