Monday, May 29

Dollar steady as debt ceiling worries weigh; Kiwi slips 1%


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SINGAPORE — The US dollar eased on

Wednesday but remained close to a two-month high as negotiations

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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.

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“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

economy.

The dollar index, which measures the US currency

against six key rivals, was at 103.43 in Asian hours, not far

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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

progress.

“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

Management.

“Moreover, it’s unclear what shape a debt deal will take and

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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

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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

Previous Change

session

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

Euro/Yen

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

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatility

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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