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Asia FX treads water, dollar flat amid US inflation angst

Potential intervention by the Japanese government in currency markets also kept traders on their toes, as the yen remained close to its weakest level in 34 years. 

The dollar index and dollar index futures moved little in Asian trade, hovering around the 104 level as focus remained squarely on upcoming consumer price index inflation data for March.

The reading is expected to show that inflation remained sticky in March- a trend that gives the Federal Reserve less impetus to begin cutting interest rates. It also comes on the heels of a blowout nonfarm payrolls report, which further points to a hawkish Fed.

Beyond the CPI data, the minutes of the Fed’s March meeting are also due on Wednesday. While the central bank had flagged 75 basis points of rate cuts during the meeting, a slew of Fed officials warned that sticky inflation could change this outlook.

Markets were also on edge over any potential currency market intervention by the Japanese government, especially as the USDJPY pair remained close to the 152 level, which marks its highest level since 1990.

Japanese officials offered a slew of verbal warnings that they would act on speculation against the yen. This kept traders wary of maintaining long positions on USDJPY. 

Mildly weaker-than-expected producer price index inflation data sparked little movement in the yen. Japanese inflation is widely expected to pick up in the coming months, on higher wage growth.

The Chinese yuan’s USDCNY pair moved little on Wednesday following a strong midpoint fix by the People’s Bank of China.

But sentiment towards Chinese markets soured after Fitch Ratings downgraded its outlook on China’s credit rating, citing concerns over mounting debt levels and slowing economic growth.

The USDCNY pair remained in sight of near five-month highs, although further gains in the pair were largely limited by the PBOC, signaling Beijing’s growing discomfort with a weaker yuan. The PBOC was also seen intervening in currency markets. 

Broader Asian currencies moved in a flat-to-low range as focus remained squarely on more cues from the U.S.. The Australian dollar’s AUDUSD pair fell 0.1%, while the Singapore dollar’s USDSGD pair tread water. 

The South Korean won’s USDKRW pair fell 0.2%, while the Indian rupee’s USDINR pair remained close to record highs above 83.0.

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