Dollar Surprise Slide: A surprise drop in the U.S. dollar to a three-month low against key rivals occurred. After the Reserve Bank of New Zealand (RBNZ) suggested more rate hikes, the New Zealand currency rose sharply.
The kiwi rallied by 0.78% to $0.6184, hitting a four-month high of $0.6207 following the RBNZ’s surprising commentary. The central bank suggested that if inflationary pressures persisted, further policy tightening might be necessary, catching investors off guard. Despite leaving interest rates unchanged, the hawkish tone fueled speculation of potential rate hikes in the future.
“The upward revision to the cash rate and inflation forecasts for 2024 keeps rate hike bets alive, while New Zealand dollar shorts rushed for the exit,” explained Christopher Wong, a currency strategist at OCBC. In contrast, the Australian dollar edged 0.11% lower to $0.6642 after reaching a four-month peak of $0.66765 earlier in the session. This movement followed data revealing a lower-than-expected inflation rate in Australia for October, driven by a decrease in goods prices.
Also Read: Dollar Dips to Three-Month Low Amidst Unwinding, Markets Anticipate Inflation Data
The broader currency market witnessed the U.S. dollar dropping to a more than three-month low against a basket of currencies, reaching 102.46. Speculation is growing that the Federal Reserve might initiate rate cuts early next year. Fed Governor Christopher Waller, a historically hawkish figure, hinted at a potential rate cut in the coming months, contributing to the belief that U.S. rates may have peaked. The dollar fell over 0.5% against the yen to 146.675, its weakest level in over two months. It last stood at 147.06 yen.
The euro surpassed $1.10, reaching an over three-month high of $1.1017 before settling at $1.0998. Analysts interpreted Waller’s shift in tone as a possible indication that the consensus among board members is that rates might have peaked and could even see cuts next year. Market indicators suggest a more than 40% chance of the Fed easing monetary policy as early as March, up from roughly 22% the previous day, according to the CME FedWatch tool.
In November, the dollar index eyed a nearly 4% loss, marking its weakest monthly performance in a year. Wells Fargo economists noted a less constructive outlook for the U.S. dollar, anticipating earlier Fed easing due to progress in reducing U.S. inflation, potentially limiting the greenback’s short-term gains.