SINGAPORE- The dollar traded firmly on Wednesday in anticipation of US inflation data, which even if it comes in softer-than-expected is still likely to be so red hot that steep US interest rate rises will be required to rein it in.
Economists expect year-on-year headline inflation running at a scorching 8.7 percent, a small retreat from June’s whopping 9.1 percent figure. Core inflation is expected at 0.5 percent month-on-month.
Currency market moves have been slight in the lead up and for previous releases, reactions have been more muted than in the volatile bond market. The greenback was broadly steady overnight, though has paused a bit of a retreat that began in the middle of July.
It bought 135.14 Japanese yen and sat at $1.0208 per euro. The Australian and New Zealand dollars eased slightly, with the Aussie last at $0.6958 – just above its 50-day moving average. The kiwi bought $0.6284.
Traders expect reaction to turn on the core inflation figure.
“The market will initially get more excited by a downside core CPI surprise than an upside surprise,” said Deutsche Bank strategist Alan Ruskin, feeding in to hopes that falling commodity prices mean inflation can quickly recede.
“It will also play to the market’s recent proclivity to buy risk dips, and will be a broad-based negative for the US dollar,” he said.
“An upside core CPI surprise will fit with the pattern of the last three releases…the purist long dollar trade in this instance is versus the yen,” he said, adding dollar/yen could likely to rise into a 135-139 per dollar range.
A quick reading on policymakers’ reaction may come from Fed officials Charles Evans and Neel Kashkari who are due to make speeches at 1500 GMT and 1800 GMT, though they will have another set of price data in August before September’s policy meeting. — Reuters
