Market Uncertainty Abounds as Dollar Holds Near Two-Year Peak
As the world waits with bated breath for a slew of U.S. economic data, the dollar has eased but remains close to a two-year high. The spotlight is on December’s nonfarm payrolls report, which is expected to provide crucial clues about the Federal Reserve’s rate outlook.
Trudeau’s Fate Hangs in the Balance
In Canada, Prime Minister Justin Trudeau is likely to announce his resignation, although a final decision has not been made. Markets seem to have priced in this eventuality, and an election could bring much-needed clarity. As a result, the U.S. dollar has fallen 0.36% against its Canadian counterpart to C$1.4395.
Yuan Weakens Past Psychological Level
The Chinese yuan has weakened past the psychological level of 7.3 per dollar in the onshore market for the first time in 14 months. This move has sparked concerns about the People’s Bank of China’s (PBOC) intentions. The onshore yuan slid to a 16-month low of 7.3289 per dollar, while its offshore counterpart ticked up 0.06% to 7.3558.
PBOC’s Next Move Under Scrutiny
According to Ray Attrill, head of FX strategy at National Australia Bank (NAB), “The PBOC looks to have stopped defending that 7.30 level.” This development has significant implications for broader Asia currencies, as well as the Aussie and kiwi. The PBOC’s next move will be closely watched, particularly its fixing perspective in the coming days.
Australian and New Zealand Dollars Unfazed
Despite the yuan’s weakness, the Australian and New Zealand dollars have remained relatively stable, trading roughly 0.2% higher in the Asian session. The Aussie last bought $0.6227, while the kiwi rose 0.22% to $0.56245.
Trump and Rates Take Center Stage
Investors are eagerly awaiting Friday’s U.S. jobs report for insight into the health of the world’s largest economy. A slew of Fed policymakers are also set to speak this week, reiterating their stance that the fight against inflation is far from over. The dollar has drawn strength from expectations of fewer Fed cuts this year, pushing the euro to its weakest level in more than two years.
Dollar Index Eases Slightly
The dollar index has eased slightly to 108.89, while the euro remains little changed at $1.0310. Sterling has risen 0.13% to $1.2440, and the yen has fallen 0.24% to 157.66 per dollar. Uncertainty surrounding U.S. President-elect Donald Trump’s policies has provided additional safe-haven support for the dollar.
Uncertainty Reigns Supreme
As NAB’s Attrill notes, “There’s still a massive amount of uncertainty as to the speed with which we’ll see policy announcements and how much the reality will match up to the rhetoric.” This uncertainty has left markets on edge, making it difficult to bet against the continuation of dollar strength.
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