The Australian dollar rallied after a surprise rise in inflation on Wednesday, raising prospects of another interest rate hike, while the US dollar kept downward pressure on the Japanese yen.
Movements elsewhere in the market were relatively muted as investors awaited the release of the Federal Reserve’s preferred inflation gauge on Friday.
Australian inflation accelerated to a six-month high of 4% in May, prompting traders to factor in a 70% chance of another rate hike by November and sent the Australian dollar up 0.46% to $0.6679.
“Today’s Australian inflation data will be of great concern to the Reserve Bank of Australia and may well tip the decision in favor of a hike at its next meeting on August 6,” Derek Halpenny said , currency strategist at Japanese bank MUFG.
A similar surprise in Canadian inflation caused the Canadian dollar to briefly rise to its highest level in three weeks, with investors reducing their expectations of further declines.
Elsewhere, the euro slipped 0.16% to $1.0698 after a European Central Bank policymaker raised the chances of further rate cuts this year, a markedly different stance from that of the Bank’s Michelle Bowman. Fed.
ECB board member Olli Rehn told Bloomberg that two more cuts this year seemed “reasonable.” The stance contrasts with that of Fed Governor Bowman, who said she did not expect a U.S. rate cut this year.
Francesco Pesole, foreign exchange strategist at ING, said political risks arising from the French legislative elections were at the forefront.
the minds of investors
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“The evolution of the price of the euro and the American dollar until the weekend will be determined by the positioning of the French election and by the American inflation data (PCE) on Friday,” he said. he declares.
The dollar index, which tracks the currency against six other currencies, rose 0.1% to 105.78, its highest level in two months.
The rise in the dollar penalized the Japanese yen, with the American currency increasing 0.14% to 159.895 yen. This movement kept traders on alert for signs of intervention, just a stone’s throw from the intervention of Japanese authorities to buy yen in April.
Sterling fell 0.14% to $1.2669, with the lack of movement reflecting tight trading ahead of the release of US data. Citi said this week that its etraders noted that interbank foreign exchange volumes were about 40% below thirty-day averages.
Analysts expect U.S. data on Friday to show inflation in the personal consumption expenditures index slowed to 2.6% in May, the lowest in more than three years, down from at 2.7% in April.
The yuan was also hurt by continued dollar strength, as China apparently showed some tolerance for a cheaper currency by gradually weakening the midpoint of the yuan’s daily trading range against to the dollar.
The yuan, which has held at the lower end of its range for months, fell to a seven-month low on Wednesday, at 7.2670 per dollar.
