US Dollar Gains Ground as Commodities Slide

24 Jul 2024 , 10:15 AM

Commodity currencies fell to multi-week lows on Wednesday, owing to weakness in Chinese demand, while the yen soared as short sellers fled ahead of a central bank meeting.

The purchasing managers’ index results will be closely examined in Europe later in the afternoon to determine if they support forecasts on two European rate cuts by the end of January.

The euro stayed at $1.0848 in Asia trade, while sterling, which could rally if UK PMIs surprise to the upside and lessen predictions on rate cuts, bought $1.2901.

Markets predict a 44% likelihood of a 10-basis-point rate hike in Japan next week, and speculators, rattled by a few rounds of alleged Japanese currency intervention, are cancelling successful “carry trades” backed in yen.

The dollar/yen sank about 1% overnight to 155.55, trading near 155.78 early in the Asia session.

Other currency combinations saw even greater movements, with the euro falling 1.3% against the yen overnight and reaching a five-week low of 168.79 yen in Asia. Mexico’s high-yielding peso fell 2% against the yen overnight, and the Australian dollar has plummeted nearly 6% against the yen in two weeks.

Drops in oil, iron ore, and copper prices, as well as a ripple of risk aversion in equities, have dragged currencies like the Australian, New Zealand, and Canadian dollars lower against the US dollar.

In early trade on Wednesday, the Australian dollar fell to a five-week low of $0.6612. The New Zealand dollar was trading near Tuesday’s two-and-a-half-month low of $0.5951.

Chinese growth numbers below expectations last week, and surprise rate cuts on Monday have highlighted a bleak picture for raw material demand, sending bellwether commodities like iron ore and copper to three-month lows on Wednesday.

The Canadian currency fell to a six-week low of C$1.3787 per dollar ahead of a central bank meeting later on Wednesday, with markets pricing an 84% chance of a 25 basis point rate cut.

At 104.5, the US dollar index was close to a two-week high. China’s yuan remained stable at 7.2909 in offshore trade.

Further ahead, traders are looking on U.S. GDP and core PCE data anticipated later this week to test expectations for two rate cuts this year. Next week’s second-quarter inflation figures in Australia will be critical in determining the risk of another interest rate hike.

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Commodity currencies fell to multi-week lows on Wednesday, owing to weakness in Chinese demand, while the yen soared as short sellers fled ahead of a central bank meeting.

The purchasing managers’ index results will be closely examined in Europe later in the afternoon to determine if they support forecasts on two European rate cuts by the end of January.

The euro stayed at $1.0848 in Asia trade, while sterling, which could rally if UK PMIs surprise to the upside and lessen predictions on rate cuts, bought $1.2901.

Markets predict a 44% likelihood of a 10-basis-point rate hike in Japan next week, and speculators, rattled by a few rounds of alleged Japanese currency intervention, are cancelling successful “carry trades” backed in yen.

The dollar/yen sank about 1% overnight to 155.55, trading near 155.78 early in the Asia session.

Other currency combinations saw even greater movements, with the euro falling 1.3% against the yen overnight and reaching a five-week low of 168.79 yen in Asia. Mexico’s high-yielding peso fell 2% against the yen overnight, and the Australian dollar has plummeted nearly 6% against the yen in two weeks.

Drops in oil, iron ore, and copper prices, as well as a ripple of risk aversion in equities, have dragged currencies like the Australian, New Zealand, and Canadian dollars lower against the US dollar.

In early trade on Wednesday, the Australian dollar fell to a five-week low of $0.6612. The New Zealand dollar was trading near Tuesday’s two-and-a-half-month low of $0.5951.

Chinese growth numbers below expectations last week, and surprise rate cuts on Monday have highlighted a bleak picture for raw material demand, sending bellwether commodities like iron ore and copper to three-month lows on Wednesday.

The Canadian currency fell to a six-week low of C$1.3787 per dollar ahead of a central bank meeting later on Wednesday, with markets pricing an 84% chance of a 25 basis point rate cut.

At 104.5, the US dollar index was close to a two-week high. China’s yuan remained stable at 7.2909 in offshore trade.

Further ahead, traders are looking on U.S. GDP and core PCE data anticipated later this week to test expectations for two rate cuts this year. Next week’s second-quarter inflation figures in Australia will be critical in determining the risk of another interest rate hike.

For feedback and suggestions, write to us at [e-mail]