The dollar weakens:The US dollar remained in a difficult position on Wednesday, after a significant drop against the major currencies overnight. This drop was triggered by a benign reading of the US producer price index, which reinforced market expectations that the Federal Reserve will implement interest rate cuts this year.
Meanwhile, the New Zealand dollar suffered a sharp drop from a four-week high after the Reserve Bank of New Zealand (RBNZ) unexpectedly cut its key cash rate, taking many market participants by surprise.
Risk-sensitive currencies remained strong, boosted by weak US inflation data, which lifted stocks even as the market awaited crucial US consumer price index (CPI) figures later in the day.
The Australian dollar hit its highest point in more than three weeks, while the British pound hovered around a two-week high, following its best daily performance against the greenback since late April.
The US dollar index (DXY), which tracks the greenback against six major pairs including the euro, yen and pound, was steady at 102.61 after falling 0.49 percent overnight.
Traders were already confident that the Federal Open Market Committee (FOMC) would cut rates at its September meeting ahead of the release of producer price data. However, the probability of a cut larger than 50 basis points rose to 53.5 percent from 50 percent the day before, according to CME’s FedWatch tool.
Commonwealth Bank of Australia analysts expect the dollar to remain in a holding pattern ahead of the release of US CPI data, but see the potential for further weakness if inflation data disappoints.
“We expect the market to double down on large interest rate cuts by the FOMC this year if core CPI rises 0.1 percent month-over-month or less. On the other hand, if core CPI rises 0.2 percent or 0.3 percent, we anticipate the market will heavily price this in,” Carol Kong, a currency strategist at CBA, wrote in a note to clients.
Kiwi falls after rate cut
The New Zealand dollar (NZD) fell as much as 0.86 percent after the RBNZ cut its cash rate by a quarter of a point. The move surprised many, as only around half of economists and just over two-thirds of traders had anticipated such a cut. The kiwi had previously hit its highest level since July 18, hitting $0.6084, but was last trading 0.6 percent weaker at $0.6040.
“The RBNZ has done a U-turn to a dovish stance, cutting interest rates to provide much-needed relief to households and businesses just three months after hinting at possible rate hikes,” said Tony Sycamore, market analyst at IG.
The Australian dollar (AUD) fell 0.06 percent to $0.6630 after earlier touching $0.66395, its highest level since July 23.
The British pound (GBP) was steady at $1.2862, following a 0.76 percent rally on Tuesday, which was further supported by data showing an unexpected drop in the UK unemployment rate.
The euro (EUR) was steady at $1.0992 after rising to $1.099975 on Tuesday, its highest level since August 5.
The dollar gained 0.24 percent to 146.52 yen (JPY), continuing to consolidate around the 147 level this week. The Japanese currency showed little initial reaction to a local media report that Prime Minister Fumio Kishida would not run for his party’s leadership election in September.
(With contributions from Reuters.)
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