The Dollar Rises Ahead Of A Busy Data Week With US Inflation On The Agenda

(CTN News) – With a U.S. inflation reading at the forefront of the week, the dollar was on the forefront of Monday’s trading session ahead of a packed week full of important economic releases.

The Federal Reserve’s preferred measure of inflation, the PCE price index, is due on Thursday, where an increase of 0.4% is expected.

This week’s data calendar also includes inflation figures from the euro zone, Japan and Australia, as well as a rate decision from the Reserve Bank of New Zealand (RBNZ) and China’s PMI readings.

Prior to the releases, the dollar edged broadly higher in early Asia trade, pushing the euro down 0.04% to $1.0817 and the New Zealand dollar down 0.55% to $0.6164.

Despite broad dollar weakness and the risk of a rate hike from the RBNZ on Wednesday, the kiwi rose 1.2% last week. The central bank is expected to maintain rates at current levels, but futures indicate that rates are likely to increase by 25 basis points by the end of the year.

Carol Kong, a currency strategist at CBA, believes the RBNZ won’t increase the OCR. If markets unwind pricing for a rate hike in the near term, the Kiwi will likely fall. It is expected that the RBNZ will remain pretty hawkish, so any falls in the Kiwi will likely be quite small.”

Against the Australian dollar, sterling was flat at $1.2671, while the Australian dollar fell 0.07% to $0.6559.

Deflation conundrum

On Tuesday, Japan’s consumer price data will be released. Core inflation is forecast to have fallen to 1.8%, the lowest rate since March 2022.

As a result, the Bank of Japan’s (BOJ) plans to end negative interest rates in the near future could be complicated. After already falling more than 6% against the greenback this year due to stark interest rate differentials between the U.S. and Japan, the Japanese currency was slightly higher at 150.40 per dollar last week.

“Since the tail end of last year, the market has been expecting the BOJ to end its negative interest rate policy in March or April,” said Jane Foley, head of Rabobank’s FX strategy. Market enthusiasm about the pace of monetary tightening from the BOJ will have been dampened by the news that Japan is in technical recession in H2 2023.”

As of last week, the Commodity Futures Trading Commission shows short positions on the yen have risen to roughly $10 billion, the biggest since November. However, a recent run of higher-than-expected U.S. producer and consumer prices has tipped the odds against a slew of Fed rate cuts this year, pushing expectations back.

Using the CME FedWatch tool, markets currently expect the Fed to start easing rates in May by less than 20%, down from 90% a month ago. In fact, the (data) might be stronger than markets anticipate, which will provide a modest boost to the dollar, according to Kong at CBA.

Nevertheless, any dollar gains will be modest. Markets aren’t expecting another rate hike from the FOMC.” Dollar index last traded at 104.01, up 0.04%.

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