The Australian dollar surged following an unexpected rise in inflation on Wednesday, while the U.S. dollar exerted downward pressure on the yen and yuan amid anticipation of U.S. price data later in the week.
In Australia, inflation reached a six-month peak in May, prompting traders to factor in increased odds of a rate hike and boosting the Aussie dollar by 0.5% to $0.6678. "Short-term interest rate markets are now pricing in slightly over a 50% probability of a rate increase by September, which appears reasonable," noted ING economist Rob Carnell.
Similarly, a surprise uptick in Canadian inflation briefly lifted the Canadian dollar to a three-week high as investors scaled back expectations of further rate cuts. Elsewhere, the euro held steady at $1.0710 in Asian trading, while the yen, at 159.78 per dollar, prompted vigilance for potential intervention given its proximity to levels where Japanese authorities intervened in April.
The New Zealand dollar hovered at $0.6116 and sterling remained stable at $1.2688, reflecting subdued activity ahead of the U.S. data release. Citi reported that interbank FX volumes this week were about 40% lower than the thirty-day average.
Market expectations hinge on Friday's U.S. data, anticipated to reveal a slowdown in annual growth of the Federal Reserve's preferred core personal consumption expenditure index to 2.6% in May, its lowest level in over three years, potentially paving the way for rate cuts. Federal Reserve policymakers, however, continue to emphasize that decisions will be data-dependent.
"Inflation in the U.S. remains elevated, and I continue to see several risks to the upside that affect my outlook," remarked Fed Governor Michelle Bowman.
The yuan faced pressure from the dollar's persistent strength, with China suggesting a degree of tolerance for a weaker currency by gradually adjusting the midpoint of the yuan's daily trading range against the dollar. The yuan fell to a seven-month low of 7.2664 per dollar on Wednesday. Analysts at Bank of America Securities adjusted their yuan appreciation expectations to 2025, anticipating a yuan rate of 7.45 by year-end amidst expectations of a Fed easing cycle and evolving U.S.-China relations post-election.
Paraphrasing text from "Reuters" all rights reserved by the original author.
