By Hannah Lang
NEW YORK (Reuters) -The dollar rose on Tuesday ahead of U.S. inflation data that could provide clues to the Federal Reserve’s monetary easing path, as analysts assess the likely impact of President-elect Donald Trump’s policies as he begins his second term .
The Australian dollar fell sharply against the US dollar as the Reserve Bank of Australia softened its tone on the inflation outlook. The previous day’s rally, fueled by Chinese stimulus promises, also tailed off after weak Chinese trade data.
Money markets are estimating an 86% chance of a 25 basis point rate cut by the US Federal Reserve next week, but investors will still be paying close attention to the expected outcome of consumer price indexes on Wednesday.
“Clearly the market is nervous about stronger pressure, which could lead to a slightly more hawkish view on the Fed, or perhaps a small repricing,” said Brad Bechtel, global head of FX at Jefferies. “I think the market wants to see if the CPI influences the decision at the December meeting, which is pretty much 100% priced at the moment, but not 100% priced.”
The US dollar rose 0.47% to 151.925 yen. The , which measures the currency against the yen and five other major peers, rose 0.23% to 106.4.
Market participants see little action ahead of a busy second half of the week with US data and the European Central Bank policy meeting.
A quarter-point cut from the ECB is baked in, but investors will focus on the communications, which could provide clues about the central bank’s future moves.
The euro fell 0.27% to $1.0526.
The price fell 0.93% to $0.6381, after earlier falling to its lowest level since August.
The day before, yields rose 0.8% after China promised a “suitably accommodative” monetary policy next year.
“If we can get Chinese stocks to rise, and China-sensitive commodities are keen to rise, that could weigh on the US dollar a bit,” said Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull. “You feel there’s a lot of pressure there to do something.”
Chinese exports grew at a slower pace in November, while imports unexpectedly contracted, impacting expectations for the Australian economy as China is its largest trading partner.
Chinese shares fell while Hong Kong shares fell as initial optimism over Beijing’s policy shift faded.
The RBA kept rates steady as expected, but noted that the board had gained “some confidence” that inflation was returning to target.
“A full calculation (of a rate cut) in the coming weeks would weigh further on the Australian dollar,” said Volkmar Baur, forex strategist at Commerzbank (ETR:), recalling that two labor market reports and fourth-quarter inflation data will come before the next policy meeting in February will be published.
The New Zealand dollar fell in sympathy with the Australian, falling 1.1% to $0.5801.
Investors will be closely watching this week’s behind-closed Chinese Central Economic Work Conference, which will set key targets and policy intentions for next year.
The yuan was last at 7.2602 per dollar in offshore trading, supported by Monday’s surprise shift in Beijing’s monetary policy stance toward more easing to boost the ailing economy.
Elsewhere, the Bank of Canada and the Swiss National Bank will decide policy on Wednesday and Thursday respectively, with both expected to make significant interest rate cuts.
Against Canada’s, the US dollar rose to its strongest level since April 2020 at C$1.4165.
