On Wednesday, the dollar steadied as investors awaited a significant inflation report later. Concurrently, the yen hovered close to a critical threshold that market analysts speculate could trigger intervention from Japanese authorities.
In contrast, the kiwi experienced a brief surge, reaching a three-week peak following the Reserve Bank of New Zealand's decision to maintain interest rates at their current levels, as widely anticipated. However, the central bank also issued cautionary remarks regarding enduring inflationary pressures.
Wednesday's primary market focus centers on the eagerly anticipated release of March U.S. consumer price inflation data. Traders are eagerly awaiting insights into the Federal Reserve's policy outlook. This data follows a robust jobs report last Friday that surpassed expectations, prompting speculation about the timing and extent of potential rate cuts by the central bank throughout the year.
According to LSEG data from Monday, futures traders have scaled back their bets to the lowest since October, projecting approximately 60 basis points in rate cuts for the year. This trend persists despite continued indications of economic strength in the United States.
As anticipation builds ahead of the data release, U.S. interest rate futures suggest a 60% likelihood of the first-rate cut occurring in June, up from 51% on Monday, as reported by CME Group's FedWatch tool. However, rates remaining unchanged are now a 40% possibility.
Strategists Speak
Carol Kong, a currency strategist at the Commonwealth Bank of Australia, notes that a robust inflation figure could prompt markets to reconsider pricing in a rate cut for June, potentially leading to a significant dollar strengthening.
A robust core CPI showing a monthly increase of 0.3% or higher could significantly impact the likelihood of a rate cut in June. With two more CPI readings expected before the meeting, any indication of sustained inflationary pressures could undermine the case for monetary easing.
The CPI has done enough damage to the outlook for an earlier rate cut
Thierry Albert Wizman, global FX and rates strategist, Macquarie New York
Even if data falls below expectations, the impact on the dollar is anticipated to be moderate, with expectations for June remaining unchanged given the existing challenges. The U.S. dollar index, reflecting its performance against a basket of six major currencies, maintained its strength at 104.12.
The upcoming CPI release will pose a significant challenge for Japanese policymakers, particularly concerning the yen's trajectory. Despite the absence of new warnings, the yen lingered near its 34-year low against the dollar ahead of the data release.
Bank of Japan Governor Kazuo Ueda downplayed market speculation, suggesting that the yen's sharp decline might prompt the central bank to consider raising interest rates. The Japanese currency traded primarily flat at 151.785 per dollar.
Other Currencies and their Rates
In other news, the Reserve Bank of New Zealand maintained the cash rate at 5.5% during its Wednesday session. The bank reiterated that its prior rate adjustments had effectively moderated economic growth and curbed inflationary pressures, though inflation levels remained above their target.
The New Zealand dollar, known as the kiwi, surged to $0.60775 against the U.S. dollar, marking its most robust performance since March 21. It currently stands at $0.6076, reflecting a modest increase of 0.25%. Meanwhile, the Australian dollar experienced a slight decline of 0.08%, reaching $0.662.
Over in currency markets, the offshore yuan saw a slight uptick, reaching a level slightly above a two-week high against the dollar at 7.2356, supported by a decrease in U.S. Treasury yields. Its current position is at 7.2388 per dollar, with traders also keeping a close watch on forthcoming China inflation and trade data.
The euro maintained stability at $1.0855, with the approaching European Central Bank meeting on Thursday capturing market attention. Similarly, sterling remained unchanged at $1.2680.
Turning to cryptocurrencies, bitcoin witnessed a modest increase of 0.28%, reaching $69,332.47.