Aussie, kiwi jump as investors wait for Fed clues; dollar struggles

Antipodean currencies rose on Tuesday, taking advantage of the greenback’s weakness as investors waited for clues about when the U.S. Federal Reserve could start tapering stimulus after pressure for rate hikes eased due to mixed labour market data.

The New Zealand dollar jumped after a strikingly strong survey of business conditions prompted investors to wager a rate hike could come as early as November.

At 0756 GMT, the kiwi was up about 0.77% at $0.7080 after having reach its firmest since mid-June.

The Aussie rose as much as 1.2% at one point to $0.7599, after the Reserve Bank of Australia pared bond purchases and tweaked its rates outlook to open the door just a sliver for the possibility of hikes before 2024.

That decision puts the RBA in a small but growing club of central banks stepping back from massive pandemic-era stimulus.

The Australian currency, however, lost some pace and was up by about 0.7% in morning trading in Europe.

The moves extended a dip in the dollar since mixed U.S. labour market data last week took some pressure off the Federal Reserve to hike, as traders see other central banks positioning themselves to make a hawkish turn.

The U.S. dollar and other majors were mostly steady as investors wait on the minutes from the Federal Reserve’s meeting in June when it surprised markets with a hawkish shift. They are due to be published on Wednesday.

At 0809 GMT, the dollar index was down 0.05% at 92.08.

On the horizon later in the day – when U.S. markets return from a holiday – is a U.S. services survey and a German sentiment survey.

The euro was flat at $1.1865 while the European Central Bank is still seen far behind many of its peers in the tightening cycle.

“As inflation pressure in the euro zone remains comparatively moderate the ECB is likely to take its time with the reduction in asset purchases,” Commerzbank strategist You-Na Park-Heger wrote in a morning note to her clients.

“A first rate hike is still a long way off anyway,” she added.

ECB policymakers are in the middle of debating a new strategy, with many now backing the notion of letting inflation surpass 2% for a while after it has lagged below that level for most of the past decade.

ECB projections put annual price growth at 2.6% in the last quarter of this year from 1.9% last month. It is then seen falling back to 1.5% in 2022 and 1.4% in 2023.

Sterling rose 0.3% to a one-week high of $1.3888 as markets looked forward to England becoming the first major country to formally start living with the coronavirus by dropping COVID-related curbs in a fortnight’s time.