"" Asian currencies were mixed on Tuesday, with the US dollar holding near multi-month lows. The US Dollar Index traded flat at 99.65, hovering near its lowest since early June.
The dollar's weakness followed a run of softer U.S. economic data, including retail sales that fell in July for the first time in nine months. Markets now price only a 35% chance of a rate increase at the Fed's September meeting, according to CME FedWatch.
However, the gains for Asian currencies were limited by a sharp rise in energy prices and higher U.S. bond yields. Brent crude rose above $91 a barrel on Tuesday, while the U.S. 10-year Treasury yield has risen above 4.7%, its highest level since 2007.
Renewed U.S.-Iran tensions and rising oil prices kept inflation risks elevated for energy-importing Asian economies. The Japanese yen remained weak, with the USD/JPY pair rising 0.2% near 160 yen.
The Indian rupee was among the currencies facing renewed pressure, with the rupee's USD/INR edged up 0.1% to 95.67 rupees. Higher U.S. yields remain another headwind for emerging Asian currencies.
Markets will now focus on the Federal Reserve's minutes due on Wednesday, for further clues on the rate outlook.
Asian Currencies Remain Volatile Amid Fed Outlook and U.S.-Iran Tensions
The Asian currencies' volatility is a result of the uncertainty surrounding the US Federal Reserve's rate outlook and the renewed tensions between the US and Iran. The US dollar's weakness has led to a rise in Asian currencies, but the gains have been limited by the sharp rise in energy prices and higher U.S. bond yields.
Impact of Rising Oil Prices
The rising oil prices have kept inflation risks elevated for energy-importing Asian economies. The Indian rupee, for example, has faced renewed pressure due to the rising crude prices.
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Markets will now focus on the Federal Reserve's minutes due on Wednesday, for further clues on the rate outlook. The minutes will provide more insight into the Fed's decision-making process and its impact on the Asian currencies.