Dollar wavers as traders turn to payrolls

The dollar wobbled in a choppy Asia session on Thursday, as investors looked ahead to U.S. labour and inflation data where softness may signal an eventual slowdown in U.S. rate hikes.

After surging on Wednesday, the greenback struggled to hold the gains and fell 0.4% to $0.9922 per euro and 0.3% against sterling.

The risk-sensitive Australian and New Zealand dollars gained more than 0.5% to lift the Aussie over $0.65 and the kiwi to a two week high above $0.58.

U.S. jobs data is due on Friday and inflation figures next week. Federal Reserve officials have repeatedly stressed they will hike and hold rates high until inflation subsides, and markets expect a steep 75 basis point hike next month.

However, an unexpectedly modest 25 basis point hike in Australia this week raised hopes other central banks may temper their tightening soon too.

“People are kind of anticipating the Fed could do likewise, but obviously the Fed is pushing back against this idea,” said Bank of Singapore analyst Moh Siong Sim.

“It’s a bit of a positioning adjustment rather than a big reassessment of the fundamentals,” he said. “It really depends on the data (and) any hint that things might slow down in the U.S. – the market will latch on to that.”

No such data nor hints from the Fed were in evidence on Wednesday, when the dollar lifted sharply.

The U.S. services industry posted another month of expansion in September, while labour market figures were solid and the trade deficit narrowed.

San Francisco Fed President Mary Daly reiterated policymakers’ focus on inflation fighting and dismissed market hopes for rate cuts in 2023.

“I think that just reminded people that you might be a bit premature in trying to price in rate cuts in the U.S.,” said the currency strategist Imre Speizer.

Interest rate futures imply more than 130 basis points of tightening ahead for the Fed before the middle of next year.

The U.S. dollar index wobbled 0.08% lower to 110.84, off lows near 110 from earlier in the week, though some distance below last week’s 20-year high of 114.78.

Sterling last bought $1.1351, while the Australian dollar was up 0.6% to $0.6528. The New Zealand dollar, riding an additional boost from a resolutely hawkish central bank hike on Wednesday, made a two-week peak of $0.5810.

The yen, which has been held steady by the risk of further Japanese intervention, sat at 144.51 per dollar.

The Saudi Arabia-led cartel of oil producers agreed to steep production cuts on Wednesday, lifting Brent crude futures to a three-week high of $93.99 a barrel.

Analysts said higher prices would probably reduce the chances of rate cuts any time soon and hit hardest for Europe and Britain.

“Higher energy prices would have a much more direct impact on the European region given the more direct relationship to their finances,” said the strategist Jan Nevruzi.

Later on Thursday the European Central Bank releases minutes from last month’s policy meeting.

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