Dollar Strengthens in Asian Trade, Aussie Rises on Rate Hike Bets

Dollar Boosted by Strong PMIs, Asian Currencies Slip

Most Asian currencies experienced slight declines on Wednesday as the dollar strengthened due to robust overnight data. In contrast, the Australian dollar rose sharply on the back of a strong inflation reading, which fueled expectations for an interest rate hike in November.

Australian Dollar Surges on Inflation Growth

The Australian dollar jumped 0.5% after data revealed that inflation grew slightly more than expected in the third quarter. This positive reading came shortly after the Reserve Bank of Australia Governor, Michele Bullock, warned about the potential for inflationary pressure and the need for more interest rate hikes.

Rate Hike Expectations Rise

As a result of the inflation data, the market started pricing in the possibility of a rate hike earlier than anticipated. ANZ analysts now expect a 25 basis point hike in November, compared to previous expectations of a hike in December.

Optimism Surrounding China Boosts Australian Dollar

The prospect of a rate hike is favorable for the Australian dollar, which has recently faced concerns over slowing economic growth. Additionally, optimism regarding China, Australia’s largest trading partner, contributed to the Australian dollar’s strength. Beijing’s announcement of a 1 trillion yuan bond issuance to fuel infrastructure development is expected to increase commodity demand in China, particularly for metals.

Yen Weakens on Interest Rate Gap

The Japanese yen weakened further due to the widening gap between local and U.S. interest rates. The currency is among the worst-performing Asian units this year, and the government may intervene in currency markets if it approaches the 150 level. The Bank of Japan’s recent intervention in bond markets to control yields has also put pressure on the yen.

Positive Economic Data Supports Dollar

In Asian trade, the euro and pound experienced slight declines despite significant overnight gains. The U.S. dollar was bolstered by unexpected growth in U.S. PMIs for October, indicating continued resilience in the country’s economy. This positive data allows the Federal Reserve more flexibility in raising interest rates.

Upcoming Economic Data and Fed Meeting

The focus now turns to the release of third-quarter GDP data, which is expected to provide further insights into the strength of the U.S. economy. This data will influence the Federal Reserve’s decision on interest rates. Fed Chair Jerome Powell is set to speak at a conference, where he may reiterate that U.S. rates will remain higher for longer.

Overall, the central bank is widely expected to keep rates on hold during its next meeting. The market will closely monitor economic indicators and any statements from the Federal Reserve for future monetary policy guidance.