Asia FX muted amid U.S.

By Ambar Warrick

-- Most Asian currencies moved in a tight range on Regular domestic foreign exchange trading platformsTuesday as concerns over rising U.S.-China tensions weighed, while the dollar weakened amid some bets that Federal Reserve Chair Jerome Powell will strike a less hawkish note during a testimony later in the day.

fell 0.1% after warned that a conflict with the U.S. could escalate if Washington does not soften its rhetoric against China.

His comments rattled sentiment towards China, largely offsetting data that showed the country logged a in February. But a bigger-than-expected decline in Chinese , coupled with a weak GDP forecast for 2023, raised concerns over a staggered economic recovery in the country.

Broader Asian currencies kept to a small range, with the falling 0.1%. Data showed that Japan’s slowed substantially in January, putting less impetus on the Bank of Japan to tighten its ultra-loose policy.

The fell 0.2% even as the and said it would tighten policy further to combat inflation. But the bank also noted that inflation had likely peaked in Australia, which could potentially herald an eventual slowdown in the bank’s rate hike cycle.

The led losses in Southeast Asia with a 0.4% drop, while the was muted as read lower than expected for February.

The also traded sideways following a softer-than-expected reading.

The dollar extended overnight losses against a basket of currencies, amid some bets that a recent cooling in the U.S. economy could elicit a less hawkish stance from the Fed’s Powell during a , which begins later on Tuesday.

The and fell 0.1% each, and were nursing steep losses from the prior week. U.S. Treasury yields also retreated further overnight, although an inversion in the persisted.

Powell is widely expected to provide more cues on monetary policy in the coming months, especially as resilience in the and stubborn inflation drove up fears of a more hawkish Fed.

But U.S. economic activity was also seen cooling under the yoke of high and , with contracting further in February.

Rising U.S. rates bode poorly for Asian currencies, as the gap between risky and low-risk debt narrows. The trend had battered Asian markets through 2022.

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