US Dollar Remains Steady While Aussie Takes A Dip
Jerome Powell’s Testimony
On Tuesday, the U.S. dollar remained stable as investors awaited Federal Reserve Chair Jerome Powell’s testimony before Congress.
Meanwhile, the Australian dollar slid after the Reserve Bank of Australia (RBA) hinted that it may be nearly done with monetary tightening.
The central bank raised its cash rate by 25 basis points to 3.60%, which has been the highest it’s been in over a decade.
However, even then the Australian dollar was the day’s biggest G10 mover, falling as much as 0.79% to $0.6679.
RBA Nears its End of Cycle of Increases
This move came as the RBA changed its reference to further rate increases, instead saying that further tightening would be necessary.
As a result, this suggests that the central bank may be nearing the end of its cycle of increases.
Matt Simpson, a senior market analyst at City Index made his comments in respect of RBA’s statement.
He indicated that RBA seems to approach the end of its cycle of monetary tightening, potentially leading to discussions of a pause in the future.
Other major currencies, including the euro, sterling, and yen, remained largely unchanged. The euro was at $1.0671, the pound was at $1.20245, and one dollar was worth 135.7 yen.
This stability meant that the U.S. dollar index, which measures the dollar against six other major currencies, also remained flat at 104.3.
This was then followed by a dip of 0.26% at the start of the week. In February, the index gained 2.8%, but it has already fallen 0.6% this month.
Investor attention is currently focused on Powell’s testimony before Congress on Tuesday and Wednesday. With the February non-farm payrolls report due on Friday is also highly anticipated.
Lee Hardman Gives His Observations
Lee Hardman, who works as a senior currency analyst at MUFG, has also made his observations.
According to him, the semi-annual testimony is crucial in deciding whether the US dollar can resume its upward trend in the coming week.
He added that investors would closely observe any indications from Powell regarding the possibility of alteration in his plans to have only a few rate hikes.
Lee further commented that investors shall also observe any signs of unease over the heightened U.S. activity and inflation.
Hardman continued that Powell’s attentiveness could trigger the dollar index to fall further below the 105.00 level ahead of the release of the NFP report.
Interest Rates Rise by 25 Basis
After raising interest rates by 25 basis points at its past two meetings, the Federal faces pressure to continue tightening monetary policy.
This is primarily due to the strong economic data that emerged in February.
Fed funds futures pricing suggests a 78% probability that the Fed will raise rates by 25 basis points at its March meeting. This comes with a 22% chance of a 50-basis hike.
Additionally, they expect interest rates to peak at 5.46% in September and still be above 5% at the end of the year.
Investors are also eagerly awaiting the final policy meeting for Bank of Japan Governor Haruhiko Kuroda. The central bank is expected to stick to its ultra-loose monetary policy.
Recent data from Japan showed that the real wages of the country fell the most. In almost 9 years, the real wages have dipped the most in the month of January.
This was owing to the fact that the power of purchasing of the consumers has squeezed due to the four-decade-high squeeze.
In conclusion, the US dollar remained relatively stable on Tuesday as the market awaits the testimony of Federal Reserve Chair, Powell before Congress.
The Australian dollar was the day’s main mover, declining as RBA suggested that it might soon end its cycle of monetary tightening. Meanwhile, the euro, sterling, and yen all held steady.
The Fed’s interest rate decision and the February non-farm payrolls report are also awaited.
The market will be watching closely for signals from Powell regarding the central bank’s plans for interest rate hikes in 2022.
This could have a significant impact on the US dollar and set the tone for the dollar.