USD weaker as Fed nears end of hiking cycle
The US dollar was mostly lower overnight with markets nervous ahead of what might be the final rate hike in the Federal Reserve’s tightening cycle.
While financial markets have a 97% probability for a 25-basis point hike tonight – taking the official Fed funds rate to a new range of 5.25% to 5.50% – there are no further rate hikes priced in (source: Refinitiv).
In fact, markets are looking for the next move from the Fed to be a cut, with three cuts priced in by November next year.
However, the Fed might push back on these expectations – and any tough talk from Fed chair Jerome Powell tonight might see the USD strengthen.
Commodities boosted by Chinese stimulus news
The US dollar was notably weaker across Asia yesterday as markets reacted to news about further stimulus measures from the Chinese government.
The Chinese Politburo, China’s key policy-making body, said weaker economic growth would require strong “counter-cyclical measures” – essentially code for greater economic stimulus.
The report also signaled support for the troubled property sector saying policy would be adjusted and optimized to provide support.
Commodity prices gained on the news with crude oil up 0.9%, iron ore up 1.3% and copper up 1.8%.
The Aussie was the main beneficiary – the AUD/USD gained 0.8%. The Chinese yuan also gained strongly with the USD/CNH down 0.7% as it extended losses from the 7.20 zone
Australian CPI key ahead of RBA next week
Australian inflation is in focus today with markets waiting to see whether a sharp decline in the monthly CPI series Is reflected in today’s more comprehensive quarterly report.
Headline quarterly inflation is forecast at 1.0% (down from 1.4% in the March quarter) while the annual rate is seen at 6.2% — down from 7.0%.
The trimmed mean, closely watched by the Reserve Bank of Australia, is forecast at 6.0% in annual terms.
The report will be critical ahead of next week’s RBA decision – markets currently see a 52% chance of 25-basis point hike (source: Refintiv).
Aussie bounces ahead of Fed risk
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 24 – 29 July
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
