Aussie jumps as inflation data sparks rate hike talk
The Aussie dollar jumped on Wednesday as surprisingly strong inflation data raised the possibility of sooner-than-planned rate hikes, while the yen was calm as Japan’s central bank is seen retaining its easy monetary policy stance later this week.
Traders are also looking to policy announcements this week from the European and Canadian central banks for clues on the outlook for rates amid the backdrop of supply-side driven global inflation pressures.
The Australian dollar was last up 0.35% at $0.7525 heading back towards a four-month top of $0.7546 hit last week, after data showed Australian core inflation rose at its fastest annual pace since 2015 in the September quarter, and quicker than the Reserve Bank of Australia’s projections.
The data backed markets’ view that the RBA is behind the curve on inflation and may have to tighten monetary policy earlier than it has been publicly planning for.
Towards the other end of the spectrum, analysts expect the Bank of Japan (BOJ) will signal a strong commitment to maintaining its easy monetary settings at Thursday’s meeting.
The BOJ is widely expected to downgrade its economic assessment, with markets betting on no rate hike in the foreseeable future.
The dollar slipped slightly to 114.03 yen but that followed a gain of 0.37% in the previous session, keeping it near its four-year high of 114.695 touched a week ago.
The European Central Bank, which holds its own policy meeting on Thursday, is also expected to be slow in tightening its policy, keeping the euro in check.
The euro stood at $1.1601, having eased 0.4% so far this week.
Not all central banks are as far off from tightening policy however. Significantly, the U.S. Federal Reserve looms large for markets as they prepare for policymakers to announce next month it will start tapering its massive asset purchase program.
The Fed speculation pushed the dollar index, which measures the greenback against a basket of its peers, to a 12-month high 94.563 earlier this month, but it has since pared some of those gains. The index was last at 93.911.
The Bank of Canada also has a policy announcement due later on Wednesday, with investors expecting it will raise its inflation forecast and largely end stimulus from its pandemic-era bond buying program, making it the first central bank from a G7 country to do so.
The Canadian dollar was steady, having eased a little in recent days as traders worry the BoC will temper investor expectations.
Markets are expecting a C$1 billion reduction in its bond purchase, while fully pricing in a rate hike by April next year.
Asian currencies fall on U.S. rate expectations, China jitters
Reference: CNBC, Reuters
Thai
Eng