Dollar Holds Firm Ahead of US Inflation Data and Jackson Hole Event
Market Overview and Key Currency Movements
By Gregor Stuart Hunter
Dollar Performance and Investor Sentiment
SINGAPORE, Aug 26 (Reuters) - The dollar made tepid gains but remained range-bound in Asian trading on Wednesday, with investors awaiting U.S. inflation data later that will set the tone ahead of the Jackson Hole symposium beginning later this week.
Against a basket of six currencies, the U.S. dollar was up 0.1% at 98.988, near the top of the narrow trading range it has sat in for the past week. The currency has drifted around a three-month low following moves by the Treasury Department to cap U.S. long-term bond yields last week.
The greenback "is likely to suffer near-term on the back of an incongruous intervention strategy," analysts from Standard Chartered wrote in a research report. "The desire to get U.S. rates lower may present another headwind to the dollar and encourage more appetite for carry trades," they said.
Major Currency Movements
Australian Dollar and RBA Outlook
Meanwhile, the Aussie dollar climbed 0.3% to $0.7183, its highest level in three months, after data showed the trimmed-mean CPI gauge, the Reserve Bank of Australia's preferred measure of cost-of-living pressures, rose at a quicker-than-expected rate of 3.6% year-on-year.
"With underlying inflation showing no signs of slowing, there’s still a risk that the RBA will deliver another rate hike over the coming months," Capital Economics analysts wrote in a research note.
Focus on US PCE Data and Jackson Hole Symposium
Traders are focused on the release of U.S. personal consumption expenditures (PCE) data for July later in the day, ahead of Fed Chairman Kevin Warsh’s keynote speech at Jackson Hole on Friday.
His speech "remains the most important event this week," DBS analysts wrote. "Warsh faces a difficult balancing act: defending the Fed’s independence and price-stability mandate while providing greater clarity on the Fed’s reaction function without abandoning his preference for less forward guidance."
Oil Prices and Canadian Dollar Reaction
Oil prices extended their recent slide on Wednesday, with Brent crude futures down 1.8% at $86.99 after Iran said it had restarted talks with neighbour Oman to manage the Strait of Hormuz and diplomatic negotiations between Washington and Tehran remained stalled.
The U.S. dollar also climbed 0.1% against the Canadian dollar to C$1.3861 per dollar, extending its gains against the loonie into a third consecutive day after Ottawa hit back on Tuesday with retaliatory tariffs on about $20 billion worth of U.S. annual imports and rolled out aid for businesses and workers, after trade talks with Washington collapsed last week.
New Zealand Dollar and RBNZ Expectations
The New Zealand dollar was down 0.4% at $0.5954, encountering resistance after rallying ahead of an interest rate decision from the Reserve Bank of New Zealand next Wednesday. The market overwhelmingly expects the central bank to hike interest rates by 25 basis points to 2.75%, according to LSEG data.
Yen, Bank of Japan, and Jackson Hole Attendance
Against the yen, the U.S. dollar was down 0.2% at 158.98 yen, remaining firmly below levels that triggered joint intervention by U.S. and Japanese officials in the past month. Influential currency investor Stephen Jen said the joint action marked a "watershed moment" for the currency.
Japan's central bank said on Wednesday that Governor Kazuo Ueda will not attend the U.S. Federal Reserve's annual Jackson Hole gathering this week due to a schedule conflict. Bank of Japan board member Naoki Tamura will attend on his behalf.
Bank of Japan Policy Outlook
A majority of economists in a Reuters poll said the Bank of Japan will likely move more swiftly than previously expected and raise interest rates again in September, with the terminal rate also likely to be higher.
Euro, Pound, and Chinese Yuan Developments
The euro was down 0.1% at $1.1661 after three sources told Reuters that European Central Bank policymakers are ready to raise interest rates at their next meeting in September but have little appetite to signal further tightening after that. The British pound slipped by a similar magnitude to $1.3631.
Against the Chinese yuan, the U.S. dollar was flat at 6.7203 yuan in offshore trade, the strongest level for the Chinese currency in 3-1/2 years.
Other Markets: Cryptocurrencies and Commodities
Cryptocurrency Rally
Cryptocurrencies continued to roar back to life as investors revived dollar debasement trades. Bitcoin climbed 1% to $79,005.72, while ether was up 1.1% at $2,462.85. So far this month, they are up 25% and 32%, respectively.
Gold Price Movements
However, gold slipped 0.4% to $4,639.44, paring its monthly gains to 14.7%.
(Reporting by Gregor Stuart Hunter; Editing by Muralikumar Anantharaman and Sonali Paul)
