TOKYO — The risk-sensitive Australian and New Zealand dollars fell on Monday after hitting near two-month highs against the greenback on disappointing data from China, a key trading partner, while the Chinese yuan weakened after a surprise drop in interest rates.

The greenback edged higher as traders continued to weigh data that raised the possibility that US inflation could peak against hawkish comments from Federal Reserve policymakers.

The U.S. dollar index, which measures the currency against six major peers, edged up 0.07% to 105.77, consolidating near the middle of its range this month.

The onshore yuan eased to a one-week low against the dollar after the PBOC unexpectedly cut key interest rates. It weakened to a low of 6.7620 to the dollar, from the previous close of 6.7430.

The New Zealand kiwi fell 0.35% to $0.6433, pulling away from Friday’s high of $0.6468, the highest level since June 8.

The Aussie dollar slipped 0.27% to $0.7102, moving further away from last Thursday’s recent high, when it hit its highest level since June 10 at $0.7136.

China’s industrial production, retail sales and fixed asset investment all fell short of analysts’ estimates as a nascent recovery from COVID-19 lockdowns faltered.

To support the economy, the People’s Bank of China (PBOC) unexpectedly lowered a key interest rate for the second time this year and withdrew liquidity from the banking system on Monday.

The PBOC said it was lowering the rate on 400 billion yuan ($59.33 billion) of one-year medium-term loans (MLF) to certain financial institutions from 10 basis points (bps) to 2, 75%, against 2.85%.

It also injected 2 billion yuan through seven-day reverse repos while reducing the cost of borrowing by the same margin by 10 basis points to 2.0% from 2.1%, according to a statement in line.

“Despite the warning of inflation risk and liquidity conditions, the prevailing downside risks from the spread of COVID and the housing sector rout prompted the PBOC to cut rates to stimulate demand,” Ken said. Cheung, chief Asian currency strategist at Mizuho Bank.

Friday’s U.S. data showing the first fall in import prices for seven months followed statistics earlier in the week which showed consumer and producer prices also cooled.

That has fueled investors’ hopes of less aggressive Fed tightening, despite a continued chorus of hawkish Fed rhetoric, with Richmond Fed President Thomas Barkin telling CNBC on Friday that he would like to see the inflation hit the Fed’s 2% target for “a while” before halting rate hikes, adding that there is “still more to come to get into restrictive territory.”

Analysts will scour the minutes from the Fed’s latest meeting, due out on Wednesday, for more clues about policymakers’ thinking, while Friday’s retail sales data will give fresh insights into the health of the economy. ‘economy.

“A growing narrative of a soft landing has taken hold, gaining traction after some easing in price indicators, with some interpreting this as allowing the Fed to slow the pace of the increases,” said Tapas Strickland, economist for markets at the National Australia Bank. written in a client note.

The minutes are a risk, however, and “could put off the idea of ​​a Fed pivot,” Strickland said.

Money markets are now pricing in a 44.5% chance of another 75 basis point rate hike by the Federal Open Market Committee in September, versus a 55.5% chance of a slower pace of tightening .

The euro eased 0.1% to $1.02455, weighed down by Europe’s struggles with the war in Ukraine, the hunt for non-Russian energy sources and a blow to the German economy. by low rainfall.

The pound slid 0.18% to $1.21135.

Against the yen however, the dollar fell 0.27% to 133.24 amid easing US Treasury yields.

Major cryptocurrencies bitcoin and ether rallied to more than two-month highs.

Bitcoin last rose 2% to $24,813, bringing it closer to Sunday’s high of $25,053, a level not seen since June 13.

Smaller rival Ether gained 2.94% to $1,993.70, approaching Sunday’s high of $2,031.56, the highest since May 23.

Ethereum’s long-awaited “merger” upgrade seems almost certain to happen in September, promising a 99.95% reduction in blockchain power consumption and preparing it for faster transactions after years of delays.

(Reporting by Kevin Buckland; Editing by Simon Cameron-Moore)