Currency Moves Unveil Market: In the Asia session on Tuesday, the dollar exhibited a slight decline, while the yen stabilized as traders shifted their attention to upcoming U.S. inflation data and various central bank meetings.
The dollar saw a 0.5% decrease against the yen, settling at 145.46. Recent days have been marked by volatility for this currency pair, with the yen surging on perceived hawkish remarks from the Bank of Japan, only to retreat following a news report downplaying the likelihood of an imminent policy change. ANZ economist Tom Kenny noted, “There is talk of a pivot by the Bank of Japan to higher rates, and there is some speculation it could come as soon as next week.”
He added, “A hike now seems premature with a backdrop of weak consumer spending,” suggesting that while trends in inflation and wages indicate sustainable inflation, ANZ anticipates Japan beginning to move away from super-accommodative negative rates by April 2024. Positive developments, such as higher iron ore prices and a rebound in Chinese property shares, contributed to the rise of the Australian and New Zealand dollars, while other currencies maintained a general stability.
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The New Zealand dollar gained 0.5%, reaching 0.6154%. On the 40th anniversary of its float, the Australian dollar edged 0.4% higher to $0.6596. This currency, once used globally as a liquid proxy for commodities and now as exposure to China, Australia’s largest trading partner, has averaged $0.7550 since 1983. The euro traded at $1.0765, and sterling was at $1.2577.
Market participants are closely watching U.S. inflation data scheduled for 1330 GMT, setting the stage for Wednesday’s Federal Reserve policy decision. The dollar has been on a downward trend since October’s mild U.S. inflation report but found support following upbeat jobs data released on Friday. While the Fed is expected to maintain rates at 5.25%-5.50% this week, attention is on the dot plots for rates and Chair Jerome Powell’s press conference. Economists anticipate flat headline inflation for November and core inflation holding steady at an annual pace of 4%, well above the Fed’s 2% target.
OCBC FX strategist Christopher Wong remarked, “Further upside surprise to data may continue to see markets pare back their bets on aggressive (rate) cuts, alongside a firmer dollar.” However, he added that a softer print could result in a moderation of dollar gains. Looking ahead, central bank meetings for the European Central Bank, Bank of England, Norges Bank, and the Swiss National Bank are on the agenda, with Norway being considered the only potential hiker. There is also speculation that the SNB might reduce its support for the franc in FX markets. The franc, which reached an almost nine-year high against the euro last week, traded slightly softer at 0.9442 francs to the common currency on Tuesday.