Dollar recovers slightly following jobs shock in early trade; Australian dollar falls as inflation slows

30 Aug 2023 , 10:50 AM

On Wednesday, the dollar experienced its biggest decline in a month and a half as investors speculated that weaker-than-expected U.S. jobs data would lessen the likelihood of future Federal Reserve rate hikes.

Following an overnight recovery from a 10-month low of 147.375, the Japanese yen traded at about 146 per dollar as support for the US dollar was lost due to a decline in Treasury yields.

After Australian inflation slowed down more than economists had anticipated in July, the Australian dollar declined from close to a two-week high.

After China’s central bank once more established an official mid-point that was significantly stronger than expected, the yuan was supported above a 10-month low in offshore trading.

After climbing more than $2,000 in the previous session to reach a nearly two-week high of $28,142, the cryptocurrency bitcoin pulled down a little after a court decision that would open the door for the first-ever spot bitcoin exchange traded fund.

The U.S. dollar index, which compares the greenback to the euro and six other developed-market currencies, was little changed at 103.57 after climbing as high as 104.36 overnight in response to a dramatic decline in U.S. JOLTS job openings data to a 2-1/2 year low in July.

The two-year Treasury yield, which is most affected by monetary policy expectations, dropped as much as 18 basis points (bps) to 4.871% before rising to roughly 4.9% during Asian trading hours.

The 10-year yield remained close to the August 11 low of 4.106%, which was reached on Tuesday, hanging around 4.13%.

The value of the dollar increased by 0.2% from Tuesday to 146.14 yen. The euro gained 0.56% overnight before edging back by 0.1% to $1.08675.

The odds for the Fed to raise rates at its meeting in November are now close to 50/50, while money market traders currently give the Fed 86.5% probability of keeping rates unchanged on September 20.

Due to a wave of strong data, investors have increased their hawkish Fed bets. On Friday, Fed Chair Jerome Powell said that additional tightening may be necessary to bring down the inflation rate, but he also pledged to proceed cautiously.

Australian inflation also decreased to its lowest level in 17 months in July, supporting the Reserve Bank’s decision to maintain current interest rates at its policy meeting the following week.

After the report, the Australian dollar fell as much as 0.46% before last trading 0.17% lower at $0.64685.

The Chinese yuan slightly declined in offshore markets to 7.2929 per dollar, but it was still significantly higher than the trough of 7.3490 set on August 17.

Since the middle of the month, the People’s Bank of China has consistently placed the official mid-point for onshore trade at 7.1816, or around 1,000 pip firmer than the Reuters estimate.

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