Asia FX, dollar muted with U.S. CPI on tap; RBA holds rates

Asian currencies and the U.S. dollar remained relatively stable on Tuesday, as traders awaited the release of U.S. inflation data that could provide insight into the Federal Reserve's interest rate trajectory. The Australian dollar held its ground after the Reserve Bank of Australia (RBA) decided to maintain its interest rate at 4.35%, as anticipated. The U.S. Dollar Index was flat at 99.81 by 01:05 ET (05:05 GMT) after gaining 0.3% the previous day.

Australia's central bank opted to keep its cash rate unchanged, signaling a pause in its quest to bring inflation back to its 2%-3% target. The RBA has raised rates three times this year, but inflation, which stood at 3.8% in June, remains above the central bank's desired range. In a statement, the RBA affirmed its commitment to taking further action to reduce inflation if necessary.

Meanwhile, the Japanese yen's USD/JPY pair remained stable around 159.23 yen, after surging 1% the day before. The yen has since relinquished around half of the gains made following a joint U.S.-Japan intervention, which lifted it from a 40-year low of 163.99. Japanese markets were closed for a holiday, resulting in thinner trading than usual.

Other Asian currencies, such as the South Korean won (USD/KRW) and the Singapore dollar (USDSGD), saw a slight decline of 0.2%. The Chinese yuan's onshore (USD/CNY) and offshore (USD/CNH) pairs were also relatively subdued.

The Indian rupee (USD/INR) saw a modest increase of 0.1%, while the dollar faced pressure following unexpectedly weak U.S. payrolls data in July, which fell short of expectations for an 80,000 increase. The dollar's decline has prompted investors to unwind some long-dollar positions, although the expectation of at least one interest rate hike this year by the Federal Reserve persists.

Investors are now closely monitoring U.S. consumer price data, which will be released on Wednesday, as well as producer prices and retail sales, for additional clues on whether inflation is moderating enough to alter the Fed's policy stance. Higher oil prices could further complicate the outlook for Asian currencies, particularly for energy-importing economies, as hopes for a U.S.-Iran agreement dim.

President Donald Trump expressed his intention to seek compensation from Iran as part of any peace deal, while Iran has demanded reparations and concessions, complicating ongoing negotiations.