SINGAPORE/LONDON—The U.S. dollar extended the previous day’s rally on Wednesday, proving too much for the Australian dollar which failed to hold onto gains after surprisingly strong inflation data increased expectations of a resumption of interest rate hikes
Eyes are also on the Canadian currency, with the U.S. dollar up 0.2 percent on the Loonie at C$1.367, testing a six month peak ahead of a meeting later in the day of the Bank of Canada, which is expected to keep rates unchanged.
The dollar index, which measures the greenback against a basket of six peers, was up 0.2 percent at at 106.42, having climbed 0.65 percent on Tuesday, after S&P Global’s flash U.S. Composite Purchasing Managers Index rose to its highest level since July.
That potentially gives the U.S. Federal Reserve more room to keep interest rates high, and contrasts with weak European PMI data released the same day, though in a contrary sign, morale among German businesses edged up in October, according to a survey released Wednesday.
The euro was down 0.1 percent at $1.0577 and the pound was down 0.22 percent at $1.2133.
The bigger mover of the day was the Aussie dollar, which gained as much as 0.7 percent to touch a roughly two-week high of $0.6400 after data showed Australia’s consumer price index rose 1.2 percent in the third quarter, above market forecasts for 1.1 percent and up from a 0.8 percent increase the previous quarter.
That left traders narrowing the odds on a possible rate increase by the Reserve Bank of Australia (RBA) next month, which would come after four rate pauses.
However, the Aussie couldn’t hold onto those gains and was last down 0.2 percent at $0.634.
“The interesting thing about Australia is that a lot of other central banks are in a very similar position. They have paused, the market’s hoping that will be it, but everyone is on tenterhooks hoping that inflation will remain well behaved, and in the case of Australia it has not,” said Jane Foley, head of FX strategy at Rabobank.
She said tight labor markets and high oil prices were underpinning fears that inflation could be sticky.
The buoyant U.S. dollar kept the yen pinned near the closely watched 150 threshold, with the Japanese currency last at 149.92 per dollar, keeping traders alert for any signs of intervention by Japanese authorities.
Pressure is mounting on the Bank of Japan to change its bond yield control as global interest rates rise.
Market participants fear that Japanese authorities will step in to support the currency has meant the dollar’s brief recent moves past 150 have not been sustained.
In cryptocurrencies, Bitcoin was last up a touch at $34,247, holding near a roughly 18-month high hit on Tuesday.
The world’s largest cryptocurrency has been on a tear this week, having surged 10 percent on Monday, fuelled by speculation that an exchange-traded bitcoin fund is imminent.
