The Australian dollar rose after a surprise rise in inflation on Wednesday raised the prospect of another rate hike, while the U.S. dollar maintained downward pressure on the Japanese yen.
Movements in other areas of the market were relatively muted as investors awaited the release of the Federal Reserve’s preferred gauge of inflation, due on Friday.
Australian inflation accelerated to a six-month high of 4% in May, which prompted traders to price in a 70% chance of a further rate hike by November and sent the Australian dollar up by 0, 46% to $0.6679.
“Today’s Australian inflation data will be very worrying for the Reserve Bank of Australia and could tip the decision in favor of a hike when it meets on August 6,” said Derek Halpenny, currency strategist at Japanese bank MUFG.
A similar surprise in Canadian inflation briefly sent the Canadian dollar soaring to a three-week high as investors scaled back expectations of further cuts.
Elsewhere, the euro slipped 0.16% to $1.0698 after a European Central Bank policymaker spoke about the possibility of further rate cuts this year, a markedly different stance from that of the Fed’s Michelle Bowman .
ECB Governing Council member Olli Rehn told Bloomberg that two more cuts this year seem “reasonable.” This is in contrast to Fed Governor Bowman, who said he does not expect any US rate cuts this year.
Francesco Pesole, FX strategist at ING, said political risks arising from the French parliamentary elections were in the foreground.
minds of investors
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“Euro-dollar price action over the weekend will be determined by the positioning of the French election and Friday’s PCE (inflation) data,” he said.
The dollar index, which tracks the currency against six peers, rose 0.1% to 105.78, about its highest level in two months.
The dollar’s rise hurt the Japanese yen, with the U.S. currency rising 0.14% to 159.895 yen. The move kept traders on alert for signs of intervention, coming within a whisker of the point where Japanese authorities stepped in to buy yen in April.
Sterling fell 0.14% to $1.2669, with the lack of movement reflecting thin trading ahead of the release of US data. Citi said this week that its etraders saw interbank FX volumes about 40% below 30-day averages.
Analysts expect Friday’s U.S. data to show that personal consumption expenditure index inflation slowed to 2.6% in May, the lowest level in more than three years, down from 2.7% of April.
The yuan has also been crushed by the dollar’s stubborn strength, with China appearing to signal some tolerance for a cheaper currency, gradually weakening the midpoint of the yuan’s daily trading range against the dollar.
The yuan, which has hugged the low side of its range for months, fell to a seven-month low on Wednesday, at 7.2670 per dollar.
