Image: Reuters Berita 24 English - The kiwi gained some support from New Zealand's higher-than-expected inflation figure, which started ...
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| Image: Reuters |
Berita 24 English - The kiwi gained some support from New Zealand's higher-than-expected inflation figure, which started the week off somewhat lower than multi-year highs for the dollar. However, dollar selling was restrained by concerns about Europe's gas supply.
Due to a combination of rising U.S. interest rates and shaky economies in Europe and China, the value of the dollar has increased significantly this year. Last week, it moved above parity against the euro for the first time in nearly 20 years before dropping down.
The yen, which has fallen by almost 17 percent this year, was stable at 138.37 per dollar at the time the euro last purchased $1.00955. After New Zealand's inflation spiked to a three-decade high, the New Zealand dollar and the Australian dollar grew somewhat.
Before Thursday, when gas is expected to resume flowing through the Nord Stream pipe from Russia to Germany following a shutdown for scheduled maintenance, traders are holding their breath. [MKTS/GLOB]
According to Joseph Capurso, head of international economics at Commonwealth Bank of Australia, "if that doesn't happen, it would be a very bad thing for a lot of currencies," with the euro likely to be the greatest loss and the dollar a beneficiary.
The ECB meeting, which is also scheduled for Thursday, is being overshadowed by the uncertainty. Policymakers are anticipated to start Europe's cycle of rate hikes with a 25 basis point (bp) increase.
A political crisis in Italy, where Prime Minister Mario Draghi submitted his resignation last week after failing to secure backing from the coalition party the 5-Star Movement for his proposal to tackle rising prices, is adding to the region's challenges.
The central bank meetings of China's central bank on Wednesday and the Bank of Japan on Thursday are being closely watched by the markets in Asia.
Peiqian Liu, China economist at NatWest Markets, said: "The silver lining is that China does not now face imminent or increased inflationary pressures, which permits the policy makers to keep to its easing stance to assist the recovery."
In spite of this, "we still expect fiscal easing to be the key policy lever in H2" since "both the hawkish Fed and China's deleveraging policy stance limit the PBoC's flexibility to decrease rates forcefully or consistently."
On Friday, the onshore yuan touched a two-month low of 6.77 per dollar on the spot market and was last traded at 6.7468. 6.756 offshore yuan were in circulation.
The BOJ is also not anticipated to alter its ultra-easy policies, which will cause further harm to the struggling yen.
After information showing that New Zealand's inflation reached a three-decade high last quarter was released on Monday, hike expectations in Australia and New Zealand somewhat increased.
Year-over-year price increase exceeded estimates at 7.3 percent, pushing up two-year swap rates by over 10 basis points and the kiwi by 0.5 percent to a one-week high of $0.6191. It was last traded for $0.61695.
Australian currency increased by 0.3% to $0.6804. [AUD/]
The U.S. dollar index remained stable at 107.86, just behind last week's two-decade high of 109.290. However, few people seem ready to declare that the dollar's gains have reached their top just yet.
The benchmark U.S. interest rate is anticipated to increase by 75 basis points when the Federal Reserve meets later in July. Although that is more moderate than the 100 bp increase that markets had first priced in last week, it is still a significant increase.
In an outlook report that instead lifted the bank's dollar estimates broadly, analysts at HSBC stated that there has been a fascination with how the dollar is ready to weaken.
The dollar is overvalued because there has been too much focus on its flaws and not enough on the growing number of them elsewhere.
The weakening of global growth and the escalating downside risks are favourable for the dollar; the bull market in the dollar has not yet ended.
