The dollar wobbled on Wednesday as expectations of a rate hike by the Federal Reserve next week receded, though currency moves were subdued as traders contemplated whether an end to the global monetary policy tightening cycle was near.
The Aussie scaled a fresh three-week high in the wake of a rate increase and a decidedly hawkish stance by its central bank, peaking at $0.6690 in early Asia trade.
The antipodean currency was last 0.12% higher at $0.6680, holding on to most of the previous session’s 0.8% gain, after the Reserve Bank of Australia (RBA) raised interest rates by a quarter-point to an 11-year high on Tuesday.
In a speech on Wednesday, RBA Governor Philip Lowe stepped up a warning of more rate hikes ahead to temper rising price pressures, even as risk of a steep economic downturn heightens with data showing GDP expanded at its weakest pace in 1-1/2 years last quarter.
“The cash rate is now 4.1%, which we think is in a deeply restrictive territory, so that obviously means that the risk of a hard landing in the Australian economy has increased,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
Similarly, rising expectations that the Bank of Canada (BoC) could resume its tightening campaign at an interest rate decision later on Wednesday sent the Canadian dollar to a near one-month high of C$1.3388 to the greenback.
The BoC was the first major global central bank to pause its rate-hike campaign in January.
“There’s a bit of a mixed picture right now and some of the central banks that have earlier gone into a pause — looks like it’s not really a pause, but more of a skip, and this may be what we’re getting with the Fed as well,” said Moh Siong Sim, a currency strategist at Bank of Singapore.
“There is the idea that perhaps the developed markets’ central banks may have to do a bit more (in raising rates).”
Money markets are widely expecting the U.S. central bank to keep rates on hold at its policy meeting next week, though there are some expectations for the Fed to deliver another rate hike later this year.
Against the dollar, sterling rose 0.05% to $1.2429, while the Japanese yen edged roughly 0.2% higher to 139.32.
The euro slipped 0.08% to $1.0685, while the U.S. dollar index gained 0.08% to 104.16.
Euro zone consumers lowered their inflation expectations, a European Central Bank survey showed, a relief for policymakers after an unexpected surge a month earlier.
CHINA DATA DISAPPOINTS
In Asia, data out on Wednesday showed that China’s exports shrank much faster than expected in May and imports fell, albeit at a slower pace, as manufacturers struggled to find demand abroad and domestic consumption remained sluggish.
The Chinese yuan barely reacted to the release, with the offshore yuan last 0.02% higher at 7.1278 per dollar.
“We are getting to a point where there is a need for more policy stimulus … so perhaps something could be coming around the corner, and that’s probably keeping the market hopeful,” said Bank of Singapore’s Sim.
Elsewhere, the Turkish lira slid nearly 3% to a fresh record low of 22.15 per U.S. dollar, while the kiwi edged 0.13% lower to $0.6071.
In cryptocurrencies, bitcoin fell roughly 1% to $26,955, after jumping nearly 6% on Tuesday.
The U.S. Securities and Exchange Commission (SEC) on Tuesday sued Coinbase (COIN.O), accusing the largest U.S. cryptocurrency platform of operating illegally because it failed to register as an exchange, a move which came just a day after the regulators sued Binance, the world’s largest cryptocurrency exchange, and its CEO Changpeng Zhao.
“Bitcoin is trading higher … on a flight to the quality end of crypto,” said Tony Sycamore, a market analyst at IG Markets.
Binance’s BNB token was up marginally to $282.27, having plunged 9.2% on Monday.
