SINGAPORE — The US dollar eased on
Wednesday but remained close to a two-month high as negotiations
over raising the US debt ceiling dragged on, while the kiwi
dived 1% after New Zealand’s central bank surprised markets by
flagging an end to rate hikes.
The Reserve Bank of New Zealand raised interest rates by 25
basis points, as expected, to the highest in more than 14 years
at 5.5% and its policy statement forecast that rate would
prevail until June, 2024 – unchanged from the earlier forecast.
“The RBNZ was surprisingly dovish in its messages and
forecasts,” said Carol Kong, currency strategist at Commonwealth
Bank of Australia (CBA). “In contrast to market
expectations, the RBNZ kept its projected cash rate peak at
5.50% and signaled its tightening cycle is over.”
The New Zealand dollar slipped 1.3% to near three
week low of $0.6165 after the decision. The Australian dollar
eased 0.24% to $0.659.
Meanwhile, the impasse in Washington over the debt ceiling
Negotiation has helped lift the dollar, even though it could
lead to a default and push the country into recession, as
Investors reckoned that could spell worse trouble for the global
The dollar index, which measures the US currency
against six key rivals, was at 103.43 in Asian hours, not far
from the 103.65 two-month peak it touched overnight.
Treasury Secretary Janet Yellen has warned that the federal
government could no longer have enough money to pay all its
bills as soon as June 1, raising the risk of a damaging default.
Investors largely shunned riskier investments as another
round of talks between the White House and the Republicans to
raise the borrowing limit ended on Tuesday with no sign of
“While the probability of a technical default is very low,
it appears to be materially higher than in past debt ceiling
stand-offs due to the current political landscape,” said Jake
Jolly, head of investment analysis at BNY Mellon Investment
“Moreover, it’s unclear what shape a debt deal will take and
the impact on the fiscal outlook.”
Elsewhere, the yen strengthened 0.11% to 138.42
per dollar, having touched a six-month low of 138.91 overnight,
while euro was up 0.09% to $1.0778.
Sterling was last trading at $1.2431, up 0.17% on
the day, after touching a one month low of $1.2373 on Tuesday.
Investors will watch out for inflation data from UK that will
showcase whether prices have eased.
Hawkish rhetoric from Federal Reserve officials has also
lifted the dollar, with traders anticipating interest rates to
stay elevated for longer.
Markets are pricing in a 27% chance of a 25 basis point hike
in June, CME FedWatch tool showed, after the Fed’s quarter point
increase earlier this month.
Investors will get more clues on policy from the minutes of
The Fed’s May meeting, due later in the global day.
“We suspect the base case among the leadership of the
committee is that the tightening cycle is probably over,” said
Kevin Cummins, chief economist at NatWest Markets.
“Recent rhetoric from a few officials seemed interested in
additional hike(s), and this sentiment may well have been
reflected in the tone of the minutes.”
Currency bid prices at 0445 GMT
Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar $1.0781 $1.0771 +0.09% +0.61% +1.0781 +1.0768
Dollar/Yen 138.3750 138.5900 -0.10% +5.49% +138.6300 +138.3800
Dollar/Swiss 0.9009 0.9016 -0.08% -2.57% +0.9015 +0.9009
Sterling/Dollar 1.2434 1.2416 +0.15% +2.82% +1.2435 +1.2416
Dollar/Canadian 1.3500 1.3503 +0.00% -0.34% +1.3510 +1.3497
Aussie/Dollar 0.6599 0.6611 -0.18% -3.19% +0.6615 +0.6586
NZ 0.6167 0.6248 -1.30% -2.87% +0.6256 +0.6166
Tokyo Forex market info from BOJ
(Reporting by Ankur Banerjee and Tom Westbrook in Singapore
Editing by Shri Navaratnam & Simon Cameron-Moore)
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