SINGAPORE - Despite lower bond yields and higher stocks, the dollar held its ground on Wednesday, as traders waited for a week's U.S. consumer price data to determine whether inflation is in retreat.
The Australian dollar went up by 0.3% to $0.6912 after data showed the annual pace of inflation increased to 7.3% in November, leaving room for more rate hikes. The New Zealand dollar went up 0.2% to $0.6380. The U.S. dollar was steady elsewhere, but was just above a seven month low on the euro at $1.0737 in the lead-up to the U.S. inflation data due on Thursday.
Since hitting a 20 year peak in September, the dollar has fallen 11% against the common currency, as investors have started to anticipate easing inflation and with it a falling dollar as the need for more interest rate hikes wanes.
For the past month or so, the common currency has struggled to make headway, and traders have been cautious in selling dollars while the U.S. Federal ReserveFederal Reserve continues to promise hikes and the global economic outlook is bleak.
It's becoming harder to argue a stronger dollar story, very clearly, ING chief economist Rob Carnell said.
He said that it is a difficult to argue a really strong euro story, which is holding back wider losses for the dollar as the euro dollar pair sets the broad tone.
The dollar was steady at 132.23 Japanese yen and $1.2161 per British pound. U.S. government bond yields, which have been attracting investors to the dollar, fell overnight and there was a boost in equities' stockmarkets.
The Federal Reserve Chair Jerome Powell did not give any policy clues during a panel discussion in Stockholm overnight, and with other Fed officials saying their next moves will be data-dependent, investors are keenly focused on U.S. CPI data.
The Commonwealth Bank of Australia strategist Joe Capurso said that another downward surprise to the core CPI would cement the deceleration trend.
The Fed's 2 February meeting would be moved from a 50 basis point increase to a 25 basis point increase because of another soft core CPI. Futures pricing has been bumpy, but it shows that markets are leaning towards a 3 4 chance of a 25 bp hike next month.
The re-opening of China has supported sentiment and lifted Asia's currency against the dollar.
China's yuan was a whisker short of a five-month high at 6.7814 in offshore trade early on Wednesday.
The Singapore dollar has scaled 19 month highs this week and the Thai baht nine month highs in anticipation of tourism picking up as China's borders open.