Mon, October 03, 2022

 Risk Appetite and Its Impact on the Australian Dollar 

European Currencies Decline. What about the Aussie and Yuan?

The greenback held steady on Wednesday, after an improvement in global risk appetite saw riskier currencies gain as well as the safe-haven yen hit a four-year low against the U.S. dollar overnight. 

Reduced demand for safe-haven assets saw the greenback hit a four-year high against the yen on Tuesday. The U.S. currency reached 114.695. However, by 10:44 GMT the greenback was up just 0.1% against the yen, at 114.470.

The dollar index stood at 93.819, having fallen since it reached a one-year high of 94.563 last week. The index rose to 94.563 on expectations that the U.S. Federal Reserve would tighten policy more quickly than previously expected. Importantly, traders priced in a tapering of Fed stimulus as soon as next month, followed by rate hikes next year.

But expectations for Fed tightening pulled back somewhat. On Tuesday, two-year yields retreated, signaling a scaling back of bets for the central bank rate hikes. 

Strategists from ING said in a client note that the dollar’s recent decline could be due to a combination of markets closing long-dollar positions. They also mentioned another factor. A strong U.S. earnings season continued to offset inflation/monetary tightening concerns according to strategists. 

 

Dollar, Euro, and pound 

The single currency was flat at $1.16295, showing no immediate reaction to important news. Jens Weidmann is the head of Bundesbank. He is not a fan of the European Central Bank’s ultra-easy monetary policy. A relentless critic of the ECB’s monetary policy made the decision to leave his post. Weidmann said he was resigning for personal reasons, nevertheless, his farewell message warned about inflationary risks.

His resignation may tilt the debate within the ECB a bit more in a dovish direction, but not very much. 

The risk-sensitive Australian dollar was up 0.2% on the day at $0.74885. One day earlier, the Aussie rose to its highest point since July.

The New Zealand dollar gained 0.2% to $0.71665. On Tuesday, it reached its best result since June. 

The Canadian dollar rose 0.1% to $1.23505, ahead of Canadian inflation data later in the session.

The British pound dropped 0.2% to $1.37605, after data showed that British inflation slowed unexpectedly in September. The data did little to change expectations that the Bank of England will become the first major central bank to raise rates.

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