Dollar Adrift as Traders Assess Fed Options; Aussie Buoyant

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By Rae Wee

SINGAPORE, SINGAPORE - (Reuters) – The dollar edged down on Wednesday as traders assessed odds of a Federal Reserve rate hike next week. Meanwhile, the Aussie scaled a new three-week-high in the wake of a recent rate increase and a decidedly hawkish stance from its central bank.

The Australian dollar reached a high of $0.6690 during early Asia trading, its highest level since mid-May. This was boosted by the lingering effects of Tuesday's quarter-point increase in interest rates to an 11-year-high.

The RBA's hawkish statement and the decision had caused the Aussie to rise 0.8% the previous session. Governor Philip Lowe warned that more tightening was on the way because inflation is still too high.

Carol Kong, currency strategist at Commonwealth Bank of Australia, said: "The cash rate has now reached 4.1%. We think that this is a very restrictive level, and that means the risk of an economic hard landing is higher."

Lowe said in a speech Wednesday that further tightening of monetary policy may be needed to control inflation, but that it would depend on the way that inflation and the economy evolve.

The U.S. Dollar fell in early Asia trading as traders lowered their expectations for a rate increase at the FOMC meeting next week.

Sterling rose by 0.08% against the greenback to $1.2432, and the Kiwi gained 0.08% at $0.6084.

According to CME FedWatch, money markets have priced in a 19% chance of the U.S. Central Bank raising rates by 25 basis point next week. This is down from a 60% chance one week ago.

The Fed is pleased with the data released last week, which showed that services in the U.S. barely grew in the month of May, as new orders were slowing. A measure of the prices businesses paid for inputs fell to its lowest level in three years, an encouraging sign in the fight against inflation.

"We do not think that the FOMC will raise rates next week... but the risks are again skewed upwards," said Kong.

The U.S. Dollar Index fell 0.03% to 104.05, while the euro increased 0.07% to 1.0098.

A survey by the European Central Bank showed that consumers in the euro zone have lowered their expectations for inflation. This is a relief to policymakers who had been surprised by a surge of inflation a month ago.

The greenback fell 0.27% against the Japanese yen to 139.26.

The Canadian dollar climbed to a new one-month high, C$1.3388 per dollar, ahead of a rate decision on Wednesday.


Bitcoin, the largest cryptocurrency in the world, has risen 6% since Tuesday.

The U.S. Securities and Exchange Commission, or SEC, sued Coinbase on Tuesday, accusing it of operating illegally as the largest U.S. crypto platform because it had failed to register itself as an exchange. This move came just one day after regulators sued Binance and its CEO Changpeng Zhao, the world's biggest cryptocurrency exchange.

"Bitcoin's trading is higher... in a flight towards the quality end," said Tony Sycamore a market analyst with IG Markets.

Binance's BNB token was up 0.45%, at $283.13 after a 9.2% plunge on Monday.