The U.S. dollar found support on Wednesday as a survey indicated a reversal in a five-month business contraction trend, while the Australian dollar gained strength on the prospects of interest rate hikes following a surprisingly robust inflation report.
The dollar index, which gauges the greenback against a basket of six major currencies, stabilized at 106.17, rebounding from the previous session’s one-month low of 105.35.
S&P Global reported that its flash U.S. Composite Purchasing Managers Index, covering both manufacturing and service sectors, reached its highest level since July. This development potentially provides more leeway for the U.S. Federal Reserve to maintain elevated interest rates.
The resilient dollar kept the Japanese yen close to the closely watched 150 level, with the Japanese currency trading at 149.84 per dollar. It has mainly moved sideways over the past month, with traders monitoring for any signs of intervention by Japanese authorities.
Pressure is building on the Bank of Japan to adjust its bond yield control mechanism as global interest rates rise. There have been discussions about potentially raising the existing yield cap, which was set just three months ago, ahead of the upcoming policy meeting next week, as reported earlier this week.
The Australian dollar surged by as much as 0.7% to reach a two-week high of $0.6400 on Wednesday, following data indicating a 1.2% increase in the country’s consumer price index during the third quarter. This figure exceeded market expectations of 1.1% and marked an improvement from the previous quarter’s 0.8% rise. Traders have now increased the odds of a potential rate hike by the Reserve Bank of Australia (RBA) next month, which would follow four rate pauses.
City Index’s Senior Market Analyst, Matt Simpson, noted, “The RBA’s November meeting is likely to be live, and the cash rate to be hiked to 4.35%. And I suspect it will be a hawkish hike.”
In the broader market, the U.S. dollar retained most of its gains against the euro after the single currency declined by 0.75% in the previous session. The dip followed data revealing an unexpected downturn in business activity in the eurozone this month. The euro was last up by 0.13% at $1.0602.
Tina Teng, a market analyst at CMC Markets, remarked, “The eurozone economy is kind of entering a recession, so this economic playout stiffens expectations that the European Central Bank might have (reached a) peak in interest rates. By contrast, the U.S. Federal Reserve could continue to raise interest rates just because the economic data looks strong.”
Meanwhile, the pound rose by 0.13% to $1.2175, and the New Zealand dollar gained 0.1% to $0.58505.
In the world of cryptocurrencies, Bitcoin was up by 0.21% at $33,988, maintaining its proximity to an 18-month high reached on Tuesday. The surge was driven by increasing speculation of an impending exchange-traded bitcoin fund (ETF).
John Glover, Chief Investment Officer at crypto lender Ledn, commented, “A growing spot ETF market would invariably mean a growing market across most of the cryptocurrency landscape. If Bitcoin is being purchased for ETFs, the price will rise … there is a very real possibility that the launch of one or more spot ETFs could lead to the next major bull run in the entire cryptocurrency ecosystem.”
