TOKYO, Aug 23 ― The dollar held steady in Asia today on expectations US Federal Reserve Chairman Jerome Powell would stick with his message that the central bank has not entered a prolonged monetary easing cycle.
Powell gives a highly-awaited speech later today at a meeting of central bankers in Jackson Hole, but doubts have emerged after two Fed officials said they saw no reason to cut interest rates again without new signs of economic weakness.
In Asian currency markets, the New Zealand dollar jumped after the Pacific nation's central bank chief said he was “pleased” with where interest rates were at, hosing down expectations of more immediate rate cuts after this month's aggressive easing.
Currency markets have in recent months been driven by global central banks' shift to much more accommodative policy settings as economic demand slows and trade disputes intensify.
Expectations that the Fed will cut rates at its next meeting in September are still very high, according to interest rate futures, but the currency market is likely to react if the tone of Powell's comments do not match these dovish expectations.
“The rates market is well ahead of the Fed in pricing in aggressive rate cuts, but Powell may not be as dovish as the market is pricing in,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
“Powell will keep the option of rate cuts on the table, but won't lean too strongly in that direction. This would be supportive for the dollar.”
The dollar was little changed at ¥106.48 (RM4.18) today. The dollar fell 0.2 per cent versus the yen yesterday following slightly weak data on the US manufacturing sector.
For the week, the greenback was on course for a 0.1 per cent gain versus the yen.
The dollar index against a basket of six major currencies was little changed at 98.170.
The New Zealand dollar rose 0.4 per cent to US$0.6391 and 0.4 per cent to ¥68.06. Reserve Bank of New Zealand Governor Adrian Orr told Bloomberg TV he can afford to wait on monetary policy after stunning investors earlier this month with a sharp 50-basis-point rate cut.
In the United States, Philadelphia Federal Reserve Bank President Patrick Harker and Kansas City Federal Reserve Bank President Esther George both said yesterday they saw no immediate need to cut rates.
Powell is likely to acknowledge later today that fallout from the US-China trade war may worsen a global economic slowdown and ultimately make more US rate cuts necessary.
But he is expected also to try to ensure he is not seen as bowing before repeated attacks from President Donald Trump for not easing policy further.
Interest rate futures traders are pricing in a 91 per cent probability of a rate cut at the Fed's September meeting, according to the CME Group's FedWatch tool. In July the Fed cut rates for the first time in a decade to 2.00 per cent -2.25 per cent.
The dollar edged to a three-week high of 0.9846 Swiss franc today.
The greenback was on course for a 0.7 per cent gain against the safe-haven Swiss franc this week in a tentative sign of an improvement in risk sentiment. ― Reuters
