The dollar climbed on Wednesday as traders anticipated US jobs data to indicate when the Federal Reserve will tighten policy.
The Reserve Bank of New Zealand raised its official cash rate for the first time in seven years. However, the hawkish tone only increased anticipation that the Fed would follow suit. The dollar has gained strength as investors prepare for the Fed to begin cutting asset purchases this year, laying the groundwork for an escape from pandemic-era interest rate settings well ahead of European and Japanese central banks.
With the US yield curve steepening again and a hawkish set of “dot plots” at the Fed’s September meeting, ING’s G10 FX strategist Francesco Pesole predicted a “bullish cocktail” for the dollar.
The dot plot is a chart that shows where Fed policymakers predict interest rates to be in the future.
Fed funds futures markets are pricing in rate hikes to begin around November 2022. However, rates are expected to peak at just over 1% through most of 2025, despite Fed members projecting rates to reach 1.75 percent in 2024.
Longer-dated US rates increased on Wednesday, while the US dollar index rose 0.1 percent to 94.082.
The release of non-farm payrolls statistics in the United States on Friday is expected to impact the Fed’s tone and timing significantly, particularly if the figures surprise or disappoint. Private payroll statistics, which can be inconsistent at times, are due around 1215 GMT. A significant shortfall on market predictions for approximately 428,000 job gains in September could impact Friday’s broader total, which should be 473,000.
The New Zealand dollar was recently down 0.9 percent at $0.6891. Meanwhile the Australian dollar was down 0.7 percent at $0.7265.
The euro was below 1.16 and recently traded at 1.1567. It was just higher than the 14-month low of 1.1563 set last week. The yen sank to a one-week low of 111.79 per dollar as Treasury yields rose, potentially attracting investment from Japan. It was within striking distance of last Thursday’s 18-month low of 112.08. Concerns about increased energy prices weighing on growth or spreading to broader inflation eroded the surge’s boost to commodity-linked currencies.
The Canadian dollar fell from a one-month high, while the Norwegian crown fell from a three-month high.
Sterling regained some of last week’s steep sell-off versus the dollar. However, it lost momentum throughout the Asian session, falling 0.4 percent to $1.3570 and remaining just below Tuesday’s three-week high on the euro. In New Zealand, despite forecasts for more hikes in November and February, a 25 basis point rate boost and hawkish tone from the central bank did little to help the currency.