US dollar holds firm but on edge ahead of Fed minutes, kiwi rises

SINGAPORE : The U.S. dollar held firm on Wednesday, with investors on tenterhooks before the release of minutes of the Federal Reserve’s latest policy meeting which could offer clues on the outlook for inflation and the pace of interest rate hikes.

The dollar index, which measures the currency against a basket of six counterparts including the yen, the euro and sterling, was last trading at 107.110, having slipped 0.65 per cent overnight.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, said Tuesday’s move reflected better risk sentiment, with stocks and bonds rallying on the back of better corporate earnings and expectations of slower rate hikes from the central bank.

The kiwi rose after New Zealand’s central bank raised interest rates by 75 basis points to a near 14-year high of 4.25 per cent and said the cash rate needed to rise faster than it had previously indicated.

The New Zealand currency spiked to flirt with a three-month high of $0.6207, and was last up 0.47 per cent at $0.6173. The central bank also warned that the economy might have to spend an entire year in recession to bring inflation under control.

In China, a spike in COVID-19 cases has clouded hopes for a swift reopening of the world’s second largest economy.

Shanghai abruptly cancelled an auto industry event on Wednesday, while the city of Chengdu plans to conduct mass testing for residents for five straight days.

“The imposition of new restrictions near-term undoubtedly will have a negative economic impact, but at least for now the market seems to focus on the fact that over the medium term China is looking to gradually move towards a strategy of living with COVID,” said Rodrigo Catril, a currency strategist at National Australia Bank.

“That said, we think that setbacks are very likely in this process, thus we should expect spikes in market volatility along the way.”

The euro rose 0.11 per cent to $1.0313, after gaining 0.6 per cent overnight, while sterling was last trading at $1.1874, down 0.08 per cent on the day.

The Australian dollar fell 0.15 per cent to $0.664.

Cryptocurrencies remained volatile, with bitcoin swinging between losses and gains. It was last up 1.79 per cent at $16,477.