HONG KONG: Major currencies were holding steady on Wednesday, ahead of another day when central bank policy takes centre stage for traders with a Reserve Bank of New Zealand meeting and the Federal Reserve’s minutes from its recent meeting both due.
The dollar index, which tracks the greenback against six main peers, was at 106.46 in morning trade, having ended Tuesday largely unchanged.
The index has recovered most of the ground it lost last week after cooler-than-expected US inflation but remains well off its mid July top of 109.29.
“The Fed’s beef with the market in recent days and weeks has been that they (the Fed) don’t subscribe to the market’s view that it will be cutting rates in 2023,” said Ray Attrill, global head of FX strategy at National Australia Bank.
“So if there are things in the minutes that push back against that notion, and that leads to a repricing of the US rate curve for 2023, that could be a catalyst for a reversal of the US dollar weakness that has characterised this last month or so.”
He said that also of interest is whether the recent equity market rally would continue, as risk sentiment and the US dollar had been negatively correlated in recent months.
Dollar firm vs Aussie, euro on heightened recession worries
The euro was steady at $1.0169 after squeezing out small gains overnight, and sterling was last fetching $1.2106.
The Japanese yen was at 134.1 in early Asia.
The currency has been a major beneficiary of the softer dollar and firmed to as much as 131.7 per dollar last week, but has since given back some of those gains.
The New Zealand dollar was steady at $0.6344 ahead of its central bank meeting, while the Australian dollar sank to a one-week low of $0.6988 and was last 0.43% weaker at $0.6993 after data showed growth in wages last quarter lagging economists’ forecasts.
The Reserve Bank of New Zealand is expected to stick to its hawkish stance and deliver a fourth straight half-point rate increase, according to a Reuters poll, which would mark its most aggressive tightening in over two decades to try to rein in stubbornly-high inflation.
With markets so confident that the RBNZ will hike by 50 basis points and continue with its hawkish rhetoric, any divergence from that would likely lead to volatility, Attrill said.
In cryptocurrencies, bitcoin was back hovering around $24,000, down from a two month high of $25,200 hit Monday.