Greenback eases as chances for a US rate rise ebb

THE US dollar dipped on Wednesday (Jun 7) as chances faded for a rate hike next week by the Federal Reserve (Fed), while the Canadian dollar touched one-month highs as traders amped up bets for the country to raise rates, and the Turkish lira hit record lows.

The Australian dollar traded at three-week highs above US$0.67 after the Reserve Bank of Australia’s decision to raise the benchmark cash rate to 11-year highs on Tuesday and governor Philip Lowe signalled more rate hikes in the pipeline, despite the greater risk of an economic downturn.

However, given the Fed is more likely to leave rates unchanged rather than cut them any time soon, the US dollar is likely to boast a natural edge over other currencies for now, said Rabobank chief strategist Jane Foley.

“Over the last month or so, we’ve seen the market slowly pricing out the risks of a 2023 interest rate cut. And that’s certainly been our view – we don’t think they will cut until 2024,” she said.

“There is persistence and resilience in inflation in the US, but also in much of the G10 as well, meaning that central banks are likely to be cautious,” Foley added.

The US dollar index has gained almost 3 per cent in the last month, partly thanks to the expectation that the Fed, which meets next week, will leave rates higher for longer.

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Nonetheless, traders were attaching a higher chance that the Bank of Canada (BOC) would raise Canadian interest rates again later on Wednesday. The US dollar was trading around one-month lows against its Canadian counterpart at about C$1.3386.

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).”

Against the US dollar, sterling rose 0.3 per cent to US$1.2456, while the Japanese yen rose 0.2 per cent to 139.40 and the euro rose 0.2 per cent to US$1.0718.

The yuan showed little reaction to data indicating that Chinese 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 stayed sluggish.

The offshore yuan was up 0.1 per cent at 7.1223. The currency staged a rally late last year after the government dismantled its strict Covid-19 policy that had suppressed normal economic activity.

But the anticipated post-pandemic bounce-back has rapidly run out of steam in China, raising concern about the risks for the global economy when one of its key engines shows signs of faltering. The yuan is now at six-month lows.

Elsewhere, the Turkish lira slid as much as 7.6 per cent to a record low of 23.16 per US dollar.

In cryptocurrencies, bitcoin fell 2.3 per cent to US$26,610, after jumping nearly 6 per cent on Tuesday.

The US Securities and Exchange Commission (SEC) sued Coinbase on Tuesday, accusing the largest US cryptocurrency platform of operating illegally because it failed to register as an exchange, a day after having sued Binance, the world’s largest cryptocurrency exchange, and Changpeng Zhao, its chief executive.

Binance’s BNB token headed for a week-on-week drop of 9 per cent, down 1.9 per cent on the day. REUTERS