© Reuters. FILE PHOTO: US dollar bills are shown in this illustration taken on March 10, 2023. REUTERS / Dado Ruvic / Illustration // File Photo
By Tom Westbrook
SINGAPORE (Reuters) – The US dollar was strong in Asian trade on Wednesday after surprisingly strong US housing data, while the yuan and dollar consolidated losses and focus turned to Federal Reserve Chairman Jerome Powell’s appearance before Congress later in the day.
Single-family homeowners rose 21.7% in May against expectations that it would be fairly flat. Traders discounted it somewhat because the jump wasn’t driven by a jump in permits, but it still gave the dollar a boost ahead of Powell’s testimony.
The greenback was marginally stronger at $1.0916 per euro overnight and flat early in the Asian session. The yen also rose at 140.50 against the dollar ahead of Bank of Japan Governor Kazuo Ueda’s appearance on Wednesday.
The Australian dollar and the yuan were the biggest losers on Tuesday and were in no mood for a rebound early Wednesday. China cut interest rates less than expected, and while the post-COVID recovery has stalled, the big hoped-for stimulus is yet to arrive.
The yuan fell about 0.3 percent overnight and in offshore trading early on Wednesday, the currency was pegged at 7.1826 per dollar, near a seven-month low.
With Chinese Premier Li Qiang abroad in Europe, traders see the imminent announcement of further stimulus as unlikely.
The Australian dollar took a further hit thanks to the central bank’s less hawkish meeting minutes than expected on Tuesday after this month’s interest rate hike. It fell 0.9% overnight and last bought $0.6790.
“The path of least resistance is further down,” said Joe Capurso, strategist at the Commonwealth Bank of Australia.
“The Australian dollar could drop below 0.6700 this week, especially if Powell is hawkish,” he said. Powell is scheduled to begin his testimony at 1400 GMT.
The New Zealand dollar was pulled lower in sympathy, breaking below its 50-day moving average before settling above its 200-day moving average at $0.6168.
And it is under pressure after the central bank announced that it was done with the increases, while data showed that the economy was in recession.
“From here we see more sluggish growth,” said Minniki Berneske, a currency trader at Kiwi Bank in Wellington.
“Our choice is for the price to head towards the $0.57 level before the end of the year, but it will not be in a straight line,” she said. “First, we would need to break above $0.59. That could only take weeks.”
Elsewhere, the pound regained some of its overnight decline to settle at $1.2760. UK inflation data is due later in the day as economists hope it will show signs of abating.
The data is likely to be crucial for the Bank of England, which meets on Thursday with markets currently pricing in around a 3/4 chance of a 25 basis point hike and a 1/4 chance of a 50 basis point hike.
“The British pound may stop the current reversal (if) expectations are reshaped, with the pair potentially jumping back above 1.28 and retesting last week’s resistance at 1.2847,” said Daniela Hathorn, analyst at Capital.com.
It was flat at 102.55. It jumped 5% overnight to smash over $28,000 for the first time since late May, helped by the launch of a new cryptocurrency exchange backed by Fidelity, Citadel Securites, and Charles Schwab (NYSE:).