Dollar pauses as rate hike fears ebb, Fed minutes up next

SINGAPORE (Reuters) – The dollar was stuck in neutral on Monday, after hitting a speed bump when last week’s mixed bag of U.S. labour data allayed investor fears about a hastening end to monetary stimulus.

FILE PHOTO: U.S. dollars are counted by a banker at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

While the headline June job creation figure beat forecasts, unemployment ticked higher and workforce participation didn’t budge – suggesting positive progress, but space for the Federal Reserve to wait before tapering asset buying or hiking rates.

Bonds rallied, stocks rose and the dollar slipped in the wake of the data – dropping most against the risk-sensitive Australian and New Zealand dollars and the rates-sensitive yen.

It steadied with slight but broad gains in the Asia session–rising about 0.2% against the kiwi, which sat at $0.7017, gaining about 0.1% to 111.13 yen and climbing by about the same margin to $1.1853 per euro.

“The report was mixed enough to probably keep the Fed from announcing tapering soon,” said Westpac analyst Imre Speizer on the phone from Christchurch.

“I think the market was thinking you’d get a signal at (the)Jackson Hole (meeting) in August. This report says that that just might be a bit early,” he said.

The dollar index was flat at 92.334, having dropped to that level on Friday. But with a 2% rise in the three weeks since the Fed surprised investors with projected hikes in 2023, analysts think the dollar has room to rise a bit further.

“Since the hawkish tilt of the Fed in June, the dollar has been increasingly sensitive to the strength of the domestic data whilst some DM and EM peers still battle COVID outbreaks,” analysts at Maybank in Singapore said in a research note.

“As such, this dollar strength can linger a while longer and a sanguine risk climate may not be entirely detrimental for the greenback at this time.”

Elsewhere, sterling was 0.1% softer at $1.3818 and emerging market currencies in Asia made small gains to catch up with the dollar’s Friday drop. [EMRG/FRX]

MINUTES

Traders focus this week is on minutes from the Fed’s June meeting–due Wednesday–and on meeting of Australia’s central bank, with both having the potential to rouse currencies from months of range trading amid uncertainty around policy outlook.

“More information on when the FOMC could taper its asset purchases can boost U.S. interest rates and the dollar,” said Commonwealth Bank of Australia analyst Joe Capurso, referring to the rate-setting Federal Open Market Committee.

“So can further evidence that the FOMC’s outlook for inflation is shifting. In particular, analysts will look for signs that the FOMC is less confident the spike in inflation will be transitory,” he said. “Or that the FOMC’s tolerance for an inflation overshoot is waning.”

Also on the horizon this week is a Reserve Bank of Australia (RBA) meeting on Tuesday, which has markets on tenterhooks because the central bank has flagged a decision on the fate of its bond purchase programme and yield target.

Analysts said that anything that looks like tapering from the hitherto dovish RBA, and the Australian dollar may rise – while the Aussie could slip if the cautious tone stays.

No change to the cash rate is likely, but economists expect the three-year yield target to stay on April 2024 bond – without being extended to the November 2024 bond line, and for the RBA to adopt a flexible approach to bond purchases.

Cryptocurrencies were offered on Monday, with bitcoin below its 20-day moving average at $34,119 and ether down 3% at $2,252.

U.S. markets are closed on Monday for the Independence Day holiday.

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