The dollar edged higher in choppy trade on Wednesday as traders anticipated U.S. jobs data for clues on Federal Reserve policy tightening timing.
The Reserve Bank of New Zealand increased its official cash rate for the first time in seven years. However, the move was widely anticipated, and the New Zealand dollar scarcely moved. The dollar has gained strength as investors prepare for the Federal Reserve to begin cutting asset purchases this year. This would lay the groundwork for an escape from pandemic-era interest rate policies well ahead of European and Japanese central banks.
“Interest rate differentials are starting to have more of an influence on currencies than they have for quite some time,” said Kim Mundy, an analyst at the Commonwealth Bank of Australia in Sydney, as a period of suppressed super-low rates begins to come to an end. Fed funds futures markets are pricing in rate hikes to start around November 2022. However, rates should peak at just over 1% through most of 2025, despite Fed members projecting rates to reach 1.75 percent in 2024.
The release of non-farm payrolls statistics in the United States on Friday should impact the Fed’s tone and timing significantly. This will be the case 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 projections for approximately 428,000 new jobs in September may reduce hopes for Friday’s broader total, which should be 473,000.
The kiwi was yesterday 0.3 percent down at $0.6931, as the U.S. dollar gained similarly elsewhere.
The euro was below $1.16 and recently traded at $1.1590. It was just better than the 14-month low of $1.1563 set last week. The yen fell to a one-week low of 111.64 per dollar. It close to the 18-month low of 112.08 reached last Thursday.
The Australian currency fell 0.3 percent to $0.7267 per dollar. Sterling recovered some of last week’s severe selloff versus the dollar but lost momentum during the Asian session, and it settled at $1.3616, slightly below Tuesday’s three-week high on the euro.
In New Zealand, a 25 basis point rate hike and hawkish tone from the central bank were ignored mainly by markets, with little impact on the currency or expectations for future walks in November and February.
Commodity-linked currencies have benefited from rising oil prices, which have reached three-year highs. The Canadian dollar has reached a one-month high and is on the verge of testing its 200-day moving average. Overnight, the Canadian dollar reached a 19-month high against the euro.