Investing.com– Most Asian currencies rose on Wednesday while the dollar weakened after a frail reading on U.S. producer inflation raised hopes that a similar easing in consumer inflation would lead to deeper interest rate cuts.

The exception was the New Zealand dollar, which posted huge losses after the Reserve Bank of New Zealand unexpectedly cut interest rates and said it was considering a bigger cut.

Improving market sentiment also narrow gains in the Japanese yen, although the currency maintained most of its recent gains.

Dollar near 7-month low on frail PPI data, waiting for CPI

Stocks weakened slightly in Asian trade, extending edged declines overnight and approaching an eight-month low reached in early August.

The dollar fell after July inflation data came in weaker than expected.

Investors slightly changed their bias towards a 50 basis point rate cut in September, the data showed, although markets were still pricing in a 25 basis point cut.

But the PPI reading raised hopes that the inflation reading due Wednesday evening would also show a decline in inflation in July, giving the Federal Reserve more incentive to start cutting interest rates.

Hopes for a rate cut also appear against the background of growing concerns about the economic slowdown in the US, which, as markets assume, will prompt the Fed to ease monetary policy even more.

In addition to the inflation data, other readings are also due to be released this week.

New Zealand dollar falls after RBNZ cuts interest rates

The New Zealand dollar was the worst performer among Asian currencies on Wednesday, losing more than 1%.

RBNZ, with its governor Adrian Orr saying the bank was also considering a 50 basis point cut.

The RBNZ noted progress in reducing inflation to its annual target of 1% to 3% and also noted that market expectations were for interest rates to fall by 100 basis points by mid-2025.

Asian currencies strengthened, tracking a weaker dollar and bets on interest rate cuts.

The Japanese yen steadied after robust overnight gains, although further yen gains were narrow by improving risk appetite. Second-quarter data from Japan is due on Thursday and is likely to factor into the Bank of Japan’s plans to cut interest rates.

The Australian dollar fell slightly, tracking weakness in the New Zealand dollar, although the Australian dollar continued to gain strongly over the past week on the back of a hawkish stance from the Reserve Bank of Australia.

The Chinese yuan fell 0.1% as attention turned to the country’s data due on Thursday.

The South Korean won and Singapore dollar traded in a flat to low range, while the Indian rupee held close to record highs of around 84 rupees.