The dollar rises in early trade as investors prepare for Jackson Hole

21 Aug 2023 , 10:40 AM

After five straight weeks of gains, the dollar started the week strong as investors anticipated the Jackson Hole meeting of the Federal Reserve for a hint as to where rates may end up as the smoke from this cycle of rate hikes clears.

Last week, the dollar increased against the euro by 0.7%, the yen by 0.5%, and the Antipodean currencies by more than 1% as U.S. Treasury yields jumped in anticipation of interest rates remaining higher for longer.

After a rate decrease in China missed market expectations, the Australian dollar, at $0.6402, and the New Zealand dollar, at $0.5913, were marginally lower and uncomfortably near to last week’s nine-month lows in early trade.

Contrary to economists’ predictions, China decreased its benchmark lending rate for one year by 10 basis points and left its five-year rate constant.

Despite the central bank’s firm fixing of its trading range, the yuan declined to the weaker side of the 7.3 to dollar range. It was last traded at 7.3011, but has managed to stay below last week’s lows of 7.31, which attracted state banks to spot markets in London and New York during business hours as buyers.

Due to the region’s exports to China, the currencies of the Antipodes frequently serve as a liquid substitute for the yuan.

The Commonwealth Bank of Australia strategists predicted in a note to clients that the Australian dollar will underperform this week.

‘We think there’s a rising chance the Australian dollar will fall under $0.60 before the year is up. To reverse the slump, it will probably take a substantial stimulus package from China that focuses on investing on infrastructure that uses plenty of commodities.

Because it has plummeted to levels similar to those at which authorities intervened last year, the yen is likewise under intervention surveillance. Early trading saw it holding steady at 145.19 per dollar.

At $1.0871, the euro stayed put. Sterling fluctuated about $1.2738.  The Swiss franc remained only marginally above a recent six-week low of 0.8817 per dollar.

The markets are mostly focused on the next Jackson Hole meeting, where Fed head Jerome Powell is scheduled to speak on Friday. This event might determine the direction of U.S. rates, in addition to waiting for news of stimulus in China.

Ten-year rates increased by 14 basis points over the course of the week, reaching a 10-month peak of 4.328% and narrowly missing a 15-year high. Thirty-year yields increased by almost 11 basis points, reaching a record high. 

The annual conference in Wyoming’s focus this year is ‘structural shifts in the global economy’.

Bitcoin, which suffered a two-month low last week due to a wave of selling fuelled by rising US yields and China’s faltering economy, nursed those losses at $26,129.

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