Dollar stability as traders weigh higher US and global rates
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Singapore, June 8 (BNA): The dollar eased on Thursday, although it received some support from higher US Treasury yields as traders pondered the possibility of another rate hike by the US Federal Reserve, even if it stops next week.
Surprising interest rate hikes by the Bank of Canada (BoC) and Reserve Bank of Australia (RBA) this week have markets raising expectations that global central banks still have to get through the tightening cycle, while bets are on rate cuts later. This year has also scaled back, according to Reuters.
The Bank of Canada on Wednesday raised the overnight rate to a 22-year high of 4.75% after a four-month hiatus, while the Reserve Bank of Australia on Tuesday raised interest rates by a quarter point to an 11-year high and warned of more to come. . .
The Canadian dollar finally rose marginally at $1.3363 Canadian dollars per dollar, after rising to a one-month high of $1.3321 Canadian dollars in the previous session.
“The Canadian central bank is seen as one of the leaders when it comes to monetary policy initiative,” said Edward Moya, chief market analyst at OANDA.
“The Bank of Canada is signaling that more rate hikes could happen and that’s got everyone rethinking that the Fed is going to wind up after the July rate hike.”
Elsewhere, the US dollar was slightly lower in Asian trading, with the British pound rising 0.13% to $1.2455, while the euro rose 0.14% to $1.0712.
Policymakers at the European Central Bank on Wednesday struck a hawkish tone and signaled that more rate hikes are on the horizon, and interest rates are likely to stay high for longer.
Against the yen, the dollar fell 0.28% to 139.76, with the Japanese currency supported by revised data on Thursday that showed the Japanese economy grew more than expected in the January-March period.
The US Dollar Index fell 0.08% to 103.96, although its losses were capped by still-high US Treasury yields.
The two-year Treasury yield, which usually moves according to interest rate expectations, was last at 4.5608%, after touching a more than one-week high of 4.604% in the previous session.
The 10-year benchmark yield was last at 3.7876%, after rising nearly 10 basis points to a peak of 3.801% on Wednesday.
Money markets are now pricing in almost a third chance that the Fed will raise interest rates by 25 basis points at next week’s policy meeting.
“Based on the Fed’s recent communications, we believe the central bank is leaning toward skipping a rate hike at this meeting and possibly tightening more later,” said ANZ economists, referring to next week’s FOMC meeting.
“We expect the FOMC to update its GDP and inflation forecasts for 2023, so a higher final rate offer is likely.”
In Asia, the domestic and foreign yuan fell to its weakest levels in six months against the dollar, weighed on concerns that China’s post-pandemic economic recovery is losing momentum.
Data released on Wednesday showed that China’s exports contracted much faster than expected in May while imports extended the decline, raising doubts about the country’s fragile economic recovery.
“To some extent, it’s a view that the trade data is another symptom of a faltering recovery,” said Ray Attrell, head of foreign exchange strategy at the National Australia Bank.
The Australian dollar was up 0.17% last at $0.6664, after falling about 0.3% in the previous session, while the New Zealand dollar rose 0.24% to $0.6051, reversing some of Wednesday’s drop of 0.7%.
Both Antipodean currencies are often used as liquid proxies for the Chinese Yuan.
In other currencies, the Turkish lira fell to a record low of 23.39 per dollar in early Asian trade, and remained under pressure at 23.33.
HF