© Reuters. FILE PHOTO: A New Zealand dollar bill is seen in this illustration on June 2, 2017. REUTERS/Thomas White/Illustration
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Written by Ray Wei
SINGAPORE (Reuters) – The Japanese yen hit a one-week low against the crude dollar on Wednesday as traders assessed interest rate expectations in the United States, while New Zealand’s currency rose briefly after a higher-than-expected inflation reading prompted prospects for further policy easing.
The dollar managed to rally after a mixed retail sales report overnight, with sales growth below expectations in June while consumers either boosted or sustained spending elsewhere, indicating consumer resilience that is likely to keep the economy on a solid growth path.
Against a basket of currencies, the US dollar rebounded from its lowest level in 15 months in the previous session, with its index settling around 100 in Asian trading.
“(The data showed) resilience in retail sales, and I think that’s because wage growth in the US remains strong,” said Tina Ting, market analyst at CMC Markets.
The Japanese yen fell slightly to 139.41 against the dollar.
Bank of Japan Governor Kazuo Ueda said on Tuesday there was still some distance to sustainably achieving the central bank’s inflation target of 2%, signaling its intent to maintain ultra-loose monetary policy for now, in contrast to hawkishness at other major central banks.
The dollar halted its sharp decline from last week in the wake of a lower-than-expected US inflation reading that led traders to price in an impending Fed rate peak.
Economists polled by Reuters expect the Federal Reserve to raise interest rates by 25 basis points at its next policy meeting this month, with the majority betting on an end to the central bank’s current monetary tightening cycle.
Across the Atlantic, European Central Bank (ECB) policymakers are also adopting a more dovish tone on the interest rate outlook, with Governing Council member Klas Nott saying in an interview on Tuesday that the ECB will look closely for signs of slowing inflation in the coming months to avoid excessive policy tightening.
The euro last settled at $1.1222, far from the previous session’s 17-month peak of $1.1276.
Sterling bought $1.3016, ahead of UK inflation data due later on Wednesday.
“The firmness of inflation measures in the UK contrasted markedly with price actions in both the eurozone and the US, which were moving lower,” said Jane Foley, head of foreign exchange strategy at Rabobank.
“If the British economy remains resilient, we expect that (the pound) is likely to react well to the optimistic outlook on (BoE) policy.
“However, if recession risks rise in the UK, the pound could rebound to put pressure on higher interest rates as investors fear the general economic backdrop of the UK and trim their long (pound) positions.”
Data released on Wednesday in New Zealand showed that consumer inflation came in slightly above expectations in the second quarter, causing a brief rally as traders pushed expectations for when the RBNZ might start cutting its cash rate.
It was last down 0.25% at $0.6258, after jumping more than 0.6% to a session high of $0.6315 after the release.
“While inflation is ‘lower’, it is not ‘low’ by any means. Importantly, measures of core inflation continue to run at rates around 6%, some of which were actually up in the June quarter,” said Satish Ranchod, chief economist at Westpac in New Zealand.
“This points to continued strength in underlying price pressures.”
The Australian dollar was last down 0.4 percent at $0.6786.
