Australian dollar rises amid hot inflation numbers

The U.S. dollar found its footing in the early hours of Wednesday, steadying near last week’s close after a seesaw day of losses and gains. Meanwhile, the Australian dollar experienced a boost, riding on the coattails of robust inflation data, fuelling expectations of potential interest rate hikes.

The dollar index DXY remained steady at 106.3, recouping some of the losses from Monday when the relentless ascent of U.S. yields temporarily halted. On Tuesday, it rebounded with a 0.62% gain following S&P Global’s release of the flash U.S. Composite Purchasing Managers Index, reaching its highest level since July. This data sparked speculations of the U.S. Federal Reserve maintaining higher interest rates.

Both the euro and the pound have remained flat on the day, with the euro at $1.0596 and the pound at $1.2163.

The standout performer of the day so far has been the Australian dollar AUD/USD, surging as much as 0.7% to touch a nearly two-week high of $0.6400. The rally was triggered by the release of data revealing that Australia’s consumer price index had risen by 1.2% in the third quarter, surpassing market expectations for a 1.1% increase and outperforming the previous quarter’s 0.8% rise.

Traders are now reevaluating the likelihood of a rate increase by the Reserve Bank of Australia (RBA) next month. This potential move comes after four rate pauses, signalling a shift in Australia’s monetary policy.

The U.S. dollar remained buoyant, maintaining the yen close to the closely watched 150 threshold. The Japanese currency held at 149.9 per dollar, putting traders on high alert for any indications of intervention by Japanese authorities.

Pressure is mounting on the Bank of Japan to adjust its bond yield control mechanism as global interest rates continue to rise. A possible adjustment to the existing yield cap, set just three months ago, is being discussed in the lead-up to next week’s policy meeting.

Jane Foley, head of FX strategy at Rabobank noted, “There is a decent chance there will be another tweak to yield curve control… If we don’t see that, it is quite possible that we will see the other side of 150 quite soon.” Market participants are concerned that Japanese authorities may intervene to support their currency, preventing the U.S. dollar’s recent brief forays past 150 from sustaining.