Dollar sparkles on US economic strength; Australian dollar declines following job data

17 Aug 2023 , 10:07 AM

The U.S. economy’s resilience highlighted the need for higher-for-longer interest rates on Thursday, and the conspicuously ultra-dovish Bank of Japan found it difficult to defend its policy position.

After the nation’s employment unexpectedly decreased in July and its unemployment rate increased more than anticipated, the Australian dollar plunged.

Following the publication of the data, the Australian dollar fell by almost 1%, bringing the New Zealand dollar down with it.

Early Asian trading saw the yen bottom out at 146.565 to the dollar, its lowest level since November, after interest rate differences between the U.S. and Japan put further pressure on the currency.

A recent run of strong U.S. economic data has reinforced the belief that interest rates will remain at restrictive levels for some time, even though the majority of money markets anticipate the Federal Reserve to keep interest rates on hold in September, with some betting that the central bank might have already completed its tightening cycle.

According to data released on Wednesday, the number of single-family homes built in the United States increased in July and the number of building permits increased. A second study also showed that production at American factories surprisingly increased last month.

Despite the burden of high interest rates, the United States is still proving to be very resilient, according to Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

That is bad news for the yen, which has been struggling with widening interest rate spreads ever since the Fed started its tightening cycle last year. Meanwhile, the BOJ is keeping Japan’s interest rates at historically low levels.

Since the Japanese yen crossed into a zone that prompted an intervention by the Japanese government in September and October of last year, it has been closely watched as it approaches the crucial 145 per dollar level for the first time in about nine months on Friday.

Sterling dropped 0.1% to $1.27195 and the euro dropped 0.07% to $1.08695.

The headline inflation rate in Britain fell significantly in July, but other important price growth indicators tracked by the Bank of England did not, according to statistics released on Wednesday.

The two antarctic currencies, which are frequently viewed as liquid proxies for the yuan, have also suffered recently as a result of the deteriorating outlook for China’s economy.

At 7.3470 per dollar, the offshore yuan touched a new nine-month low.

At 103.59, the US dollar index reached a two-month high.

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