Asia FX subdued, dollar holds losses ahead of U.S. inflation data

Asian currencies experienced a slight dip on Tuesday, following strong gains the previous day, while the US dollar managed to retain its losses from the previous night as investors awaited crucial U.S. inflation data. The US Dollar Index remained flat at 101.673 by 04:07 GMT, after dropping 0.6% in the prior session. The dollar's decline came after a bounce in risk-sensitive assets following U.S. President Donald Trump's hint that a potential military action against Iran was unlikely, alongside ongoing diplomatic efforts. Lower crude prices also helped alleviate fears of another energy-induced inflation shock.

Nevertheless, investors remained cautious prior to the release of U.S. consumer price index data for October, which was expected later on Tuesday. A more robust-than-anticipated reading would bolster expectations of additional monetary tightening and further bolster the dollar, especially after the impressive U.S. employment data released last week nudged market participants towards anticipating interest rate hikes.

Analysts at MUFG noted that the prevailing scenario, combining a weaker dollar and lower oil prices, remains beneficial for Asia FX. However, equity flow dynamics continue to play a role.

The Japanese yen's USD/JPY pair stayed relatively stable near 158 yen, supported by the possibility of further intervention by Japanese authorities. The pair had slipped 0.4% on Monday. Market expectations of a December rate hike by the Bank of Japan have softened, limiting the yen's potential for further appreciation. Yet, the prospect of additional intervention has thus far prevented a more pronounced decline. Meanwhile, South Korea's won (USD/KRW) pair gained 0.3%, having fallen 1.7% the day before.

China's latest trade figures underscored the strength of its external sector. Exports soared 35.2% year-on-year in October, while imports increased 41.6%, resulting in the nation's trade surplus surpassing $1 trillion for 2026. The Chinese yuan's onshore (USD/CNY) and offshore (USD/CNH) pairs were mostly unassuming. The Australian dollar (AUD/USD) pair edged up 0.2%. The Singapore dollar (USD/SGD) and the Indian rupee (USD/INR) both traded near flat levels.