The U.S. dollar declined on Tuesday due to investors’ trepidation over the U.S. Federal Reserve’s next move. A statement from the Fed is due on Wednesday, and it will be followed by a news conference half an hour later. Investors don’t expect the agency to change interest rate settings.
After last week’s job figures, futures pricing indicates that traders have abandoned expectations of rates dipping below zero next year.
U.S. jobs data for May showed an unexpected increase in employment last week. Furthermore, Chinese export numbers for last month were higher than forecast.
Imre Speizer, Westpac FX analyst in Auckland, noted that economies are smashed, but not smashed as badly as analysts expected. He thinks that’s the key to a new rally.
The Japanese yen had big overnight gains, leading to a week-high 108.03 per dollar, as traders consider the possibility of the Fed increasing bond-buying.
What about the Aussie and the Kiwi?
The Australian and New Zealand dollars declined from recent peaks in early trade. The kiwi jumped to a four-and-a-half month high of $0.6576 on the first morning since New Zealand ended all social restrictions after declaring the nation free of infections on Monday.
The Australian dollar briefly reached a 10-month tip of $0.7040, while the sterling made a three-month high of $1.2755, though all three lowered by mid-morning.
However, Yukio Ishizuki, the foreign exchange strategist at Daiwa Securities in Tokyo, thinks that the dollar is under selling pressure.
An ANZ survey of traffic movement saw a sharp rebound in heavy vehicle traffic in New Zealand last month. That is a forward indicator of economic growth. Australia has also lifted most of its restrictions, and it seems, the virus is retreating there as well.
Despite these improvements, the World Health Organization cautioned that the coronavirus pandemic is “far from over”, on Monday.
Despite the optimistic sentiment, FX markets were relatively subdued while waiting for the outcome of the Fed meeting. The euro last traded at $1.1304 and the pound at $1.2736.
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