Dollar Steady, Aussie Weakens on Inflation Data

30 Oct 2024 , 10:13 AM

The dollar hovered near a 3-month high on Wednesday in a critical week for economic data that may indicate the direction of U.S. monetary policy.

However, the Australian dollar edged closer to a 3-month low. It’s because the inflation trends suggested that an interest rate cut by the Reserve Bank of Australia is unlikely this year.

Mixed U.S. data overnight, indicating a softening job market but a confident consumer base, offered limited insight into the Federal Reserve’s easing plans. This allowed the dollar to drift slightly lower with Treasury yields on Tuesday after a strong seven-year note auction.

Recent economic indicators, however, have pointed to a robust U.S. economy, particularly in employment, leading to fewer bets on the pace of interest rate cuts. The ADP employment report is expected later today, while Friday’s payrolls report is expected to provide further clues.

Australia’s preferred inflation measure, the trimmed mean, slowed to 3.5% from 4.0% in the third quarter. Service-sector inflation, however, remained high, and the measure increased by 0.8% quarter-over-quarter, exceeding the expected 0.7% rise.

The Australian dollar held steady at $0.6562 by 0101 GMT, close to Tuesday’s low of $0.6545, a level last reached in early August.

The U.S. dollar index, which compares the dollar to six major currencies, remained steady at 104.24 after touching a peak since late July at 104.63.

The 10-year Treasury yield dropped to 4.2461% on Wednesday, down from Tuesday’s high of 4.3390%, its strongest level since July 5.

The dollar and U.S. bond yields have gained support recently from increased market speculation around a potential November win for Republican candidate Donald Trump, whose tariff and immigration policies are seen as inflationary.

This sentiment has also driven bitcoin near its all-time high from March, with the cryptocurrency last trading at approximately $72,082, after a peak of $73,609.88 in the prior session.

The dollar-yen pair dipped 0.06% to 153.27, down from a three-month high of 153.87 on Tuesday. Political uncertainty in Japan following the weekend election, where the ruling coalition lost its majority, has added pressure to the yen. This situation could potentially lead to more fiscal spending and delays in rate hikes.

The euro rose slightly by 0.06% to $1.0824 ahead of GDP readings in Europe, which may influence the European Central Bank’s upcoming rate decision.

Sterling remained flat at $1.3016, with markets anticipating the Labour government’s first budget announcement later in the day.