Dollar fell on Tuesday. What about the Aussie?
On Tuesday, the U.S. dollar fell, losing some of its gains from the previous session. Despite that, the greenback remained near its one-month high hit yesterday. Investors bet on how high the U.S. Federal Reserve would need to hike rates in its quest to lower inflation. As the minimum range increased, demand for dollars lessened slightly. Some traders think that Fed mightn’t be willing to continue delivering higher rate hikes.
On Friday, a U.S. jobs report showed that nonfarm payrolls soared by 517,000 jobs last month. That indicated that the labor market remains resilient. This news bolstered the U.S. dollar as investors hoped the Federal Reserve would contemplate delivering more rate increases. One of the concerns has been that the agency’s aggressive policy might damage the economy and send it into a recession. However, that doesn’t seem to be the case thus far.
How are European currencies faring?
The common currency surged forward by 0.08% to $1.0735 on Tuesday. However, it tumbled to $1.0709 in the prior session, hitting its lowest level since January 9. Meantime, the British Pound climbed by 0.2% today. It exchanged hands at $1.2046 at last. Sterling also plummeted to a one-month low of $1.2006 on Monday. Moreover, the New Zealand dollar rallied by 0.29% to $0.6323. Despite the gains, the Kiwi traded near its one-month low of $0.6271 hit on Monday.
On Monday, the U.S. dollar index skyrocketed to an almost one-month peak of 103.76. However, it dropped by 0.13% to 103.47 today. Tina Teng, the market analyst at CMC Markets, noted that the U.S. report about stronger job numbers than the analysts expected caused traders to reverse expectations about the Fed’s monetary policy. Market participants now think that the Fed might have enough room to continue hiking. She added that while this job number isn’t crucial, it will have a major impact on the agency’s decision.
U.S. Treasury yields have jumped due to such market sentiment. Two-year yields stood at 4.4267% at last, after jumping to a one-month peak of 4.4930% in the previous session. On the other hand, the benchmark 10-year yield remained at 3.6192% on Tuesday. The latter hit a four-week high of 3.6550% yesterday.
On Tuesday, the Japanese currency rallied by 0.3% to 132.26 per USD. Nonetheless, it exchanged hands near its one-month low of 132.90 per USD hit on Monday.
Today, new data showed that the country’s real wages soared in December for the first time in nine months. Still, investors argued about whether the Japanese government would change its ultra-easy monetary policy.
On Monday, a newspaper reported that Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya might take the post of central bank governor, succeeding Haruhiko Kuroda.
What about the EM currencies?
The Philippine peso plunged to a more than three-week low on Tuesday. Traders contemplated whether the country’s central bank would continue rate hikes. Equities in Kuala Lumpur declined by 1%, while in Singapore, shares dropped by 0.3%. On the other hand, Seoul stocks rallied by 0.5% today. In Jakarta, shares added 0.9% during this session.
On Tuesday, the Thai baht jumped by 0.3%. At the same time, Singapore’s dollar added 0.1%. The Indian rupee gained the same amount. However, some currencies suffered during this session. The ringgit tumbled by 0.9%, hitting its lowest level since January 19. Overall, the currency has soared by 2.4% thus far in 2023, though. Indonesia’s rupiah dropped by 0.6%, reaching a more than two-week low.
The Australian dollar skyrocketed on Tuesday after the Reserve Bank of Australia increased its interest rates. The Aussie jumped as high as $0.6952 during the session. However, it traded at $0.6932 at last.
The Reserve Bank of Australia announced on Tuesday a 25 basis points hike. It also confirmed that the rate increases would continue in the coming months. This news hasn’t surprised investors, though, as they expected the RBA to take the more hawkish course.
Rob Carnell, ING’s regional Head of Research, Asia-Pacific, noted that the central bank likely expects inflation to stay high for some period. That’s why it decided to continue more aggressive rate hikes in the coming months. However, such a policy will boost longer-term bond yields. The Australian dollar will also benefit, as a hawkish course from the central banks usually supports their currencies.
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