Dollar wobbles as traders consider rate outlook

LONDON: The dollar wobbled on Wednesday as chances faded for a rate hike next week by the Federal Reserve, while the Canadian dollar touched one-month highs as traders amped up bets for the country to raise rates and the Turkish lira hit record lows. The Aussie scaled three-week highs after the Reserve Bank of Australia's decision to raise to 11-year highs on Tuesday and Governor Philip Lowe signalled more rate hikes in the pipeline, despite the greater risk of an economic downturn.

The currency was up 0.1% at $0.6677, having touched an overnight peak of $0.669, its highest since May 16. However, given the Fed is more likely to leave rates unchanged, rather than cut them any time soon, the U.S. dollar is likely to boast a natural edge over other currencies for now, said Rabobank chief strategist Jane Foley.

"Over the last month or so, we've seen the market slowly pricing out the risks of a 2023 interest rate cut. And that's certainly been our view - we don't think they will cut until 2024," she said. "There is persistence and resilience in inflation in the U.S., but also in much of the G10, as well, meaning that central banks are likely to be cautious," Foley added.

The dollar index has gained almost 3% in the last month, partly thanks to the expectation that the Fed, which meets next week, will leave rates higher for longer. Nonetheless, traders were attaching a higher chance that the BoC would raise Canadian interest rates again later on Wednesday. The U.S. dollar was trading around one-month lows against its Canadian counterpart at about C$1.3409.

The BoC was the first major global central bank to pause its rate-hike campaign in January. "There's a bit of a mixed picture right now and some of the central banks that have earlier gone into a pause - looks like it's not really a pause, but more of a skip, and this may be what we're getting with the Fed as well," said Moh Siong Sim, a currency strategist at Bank of Singapore.

"There is the idea that perhaps the developed markets' central banks may have to do a bit more (in raising rates)." Against the dollar, sterling was flat at $1.242, while the Japanese yen rose 0.1% to 139.47.

The euro held steady at $1.0688 after a survey from the European Central Bank showed consumers in the euro zone lowered inflation expectations.

CHINA DATA DISAPPOINTS

The yuan showed little reaction to data indicating that Chinese exports shrank much faster than expected in May and imports fell, albeit at a slower pace, as manufacturers struggled to find demand abroad and domestic consumption stayed sluggish. The offshore yuan was last flat on the day against the dollar at 7.1341. The currency staged a rally late last year after the government dismantled its strict COVID-19 policy that had suppressed normal economic activity.

But the anticipated post-pandemic bounce-back has rapidly run out of steam in China, raising concern about the risks for the global economy when one of its key engines shows signs of faltering. The yuan is now at six-month lows. Elsewhere, the Turkish lira slid as much as 7.6% to a record low of 23.16 per U.S. dollar.

In cryptocurrencies, bitcoin fell 1.5% to $26,815 after jumping nearly 6% on Tuesday. The U.S. Securities and Exchange Commission (SEC) sued Coinbase on Tuesday, accusing the largest U.S. cryptocurrency platform of operating illegally because it failed to register as an exchange, a day after having sued Binance, the world's largest cryptocurrency exchange, and Changpeng Zhao, its chief executive.

Binance's BNB token headed for a week-on-week drop of 9%, down 0.7% on the day.