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Asia FX edges higher, dollar mixed ahead of Fed cues, inflation data

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Most Asian currencies rose slightly on Tuesday, while the dollar was somewhat mixed ahead of more cues on the U.S. economy and monetary policy from key inflation data due later this week.

Still, gains in regional currencies were limited following a string of less hawkish cues from local central banks, amid signs that inflation was peaking across a bulk of the region.

China’s yuan was flat as data showed consumer price index inflation in the country missed expectations in March, while producer price index inflation continued to fall. The reading pointed to a mixed economic rebound in the country, especially as its manufacturing sector struggles with slowing demand.

The reading also limits the potential for interest rate hikes by the People’s Bank of China, which is expected to dent the yuan’s appeal.

The Australian dollar jumped 0.4%, and was among the best performers for the day as data indicated an improvement in local consumer sentiment, after the Reserve Bank paused its rate hike cycle earlier this month.

The South Korean won rose 0.2%, even as the Bank of Korea kept interest rates steady for a second consecutive meeting on Tuesday. The bank had paused an over-year-long rate hike cycle amid cooling economic growth and retreating inflation.

The Indian rupee fell 0.1%, extending losses after the Reserve Bank of India unexpectedly held interest rates steady last week, and signaled an extended pause in its rate hike cycle on the grounds that inflation had peaked.

The dollar was mixed against a basket of currencies, with relatively strong nonfarm payrolls data fueling immediate demand for the greenback. The dollar index rose nearly 0.3%.

But dollar index futures fell 0.2%, and were also trading at a discount to the greenback’s current price amid expectations that the Federal Reserve has a limited amount of rate hikes left this year.

Focus this week is squarely on inflation data for March, as well as the minutes of the Fed’s March meeting. Both indicators are due on Wednesday, and are expected to provide more cues on the path of interest rates.

The Japanese yen rose 0.2% as improving sentiment dented the currency’s safe haven appeal. A dovish near-term outlook for Japanese monetary policy also kept appetite for the yen limited.

The Philippine peso rose 0.2% as data showed that the country’s industrial production blazed past expectations in February. But the country also logged an unexpected trade deficit during the month.

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