The U.S. dollar rose to its highest level of the month against the yen on Tuesday, as traders waited for the next day’s U.S. inflation reading due for further clues on Federal Reserve policy.
The Australian dollar held steady ahead of a central bank interest rate decision later in the day, after the currency rebounded from a four-month low on Monday.
The US dollar added 0.16% to 151.45 yen by 0121 GMT, and touched 151.55 for the first time since November 28.
While markets have priced in a quarter-point Fed rate cut on Dec. 18 as a virtual certainty, Wednesday’s consumer price index could highlight just how much room for maneuver there is policy makers for easing next year.
Data on Friday showed U.S. job growth rose in November, but an increase in the unemployment rate to 4.2% indicated a jobs market that should allow the Fed to cut interest rates again this month.
According to Kyle Rodda, senior financial markets analyst at Capital.com, one of the current “critical market themes” is “the risk of persistent inflation and a Fed interest rate cut in the year next”.
In Australia, although the general consensus is not to change policy, “there is scope for a change in direction after last week’s GDP data revealed the moribund state of the Australian economy”, Mr. Rodda said.
A modification of the “critical phrase” of the general policy statement, according to which the bank “excludes nothing”, to “something less neutral”, could bring forward the price of a first rate cut as early as February, said Mr. Rodda.
Right now, traders are almost entirely sold on a drop in April, while a drop in February is considered a toss-up.
The Aussie fell 0.23% to $0.6427. That followed a 0.8% rise on Monday after China’s biggest trading partner promised “suitably loose” monetary policy next year. The currency hit its lowest level since August 5 on Friday at $0.6373.
The New Zealand dollar fell 0.33% to $0.5846, after rising 0.57% in the previous session.
The euro slipped 0.05% to $1.0549, while the pound sterling fell 0.03% to $1.2748.
The U.S. dollar index, which measures the currency against the euro, pound sterling, yen and three other major currencies, gained 0.06% to 106.22.
Besides U.S. CPI, the main events of interest to investors this week are the European Central Bank meeting on Thursday, where a quarter-point cut is expected, and China’s closed-door Central Economic Conference.
The yuan remained stable at 7.2667 per dollar in offshore trading.
Elsewhere, the Bank of Canada and the Swiss National Bank decide policy on Wednesday and Thursday, respectively, and both institutions are expected to cut interest rates sharply.
Against the Canadian dollar, the US dollar rose 0.03% to 1.4177 Canadian dollars, keeping it near its highest level since April 2020.
The U.S. currency was little changed at 0.87905 Swiss francs.
