Forex Today: Australian Inflation Hits 32-Year High, Focus on the BOC
The following information is important for Wednesday, January 25. Investors are looking for the next significant catalyst as markets remain indecisive mid-week. As a result of Tuesday’s failed recovery attempt, the US Dollar Index is hovering around 102.00, while the 10-year US Treasury bond yield is hovering just below 3.5 percent.
As the European morning begins, US stock index futures are trading in negative territory, pointing to cautious market conditions. There will be a focus on IFO sentiment surveys from Germany in the European economic docket. It is expected that the Bank of Canada (BoC) will announce its policy decisions later in the day.
The Composite PMI from the S&P Global PMI survey in the US reached 46.6 on Tuesday, indicating that economic activity in the private sector continued to contract in early January. Based on the press release, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted, “input cost inflation has accelerated into the new year, partly due to rising wage pressure, which could prompt a further aggressive tightening of Fed policy despite increasing recession risks.”
Although US Dollar outperformed rivals following this comment, the late rebound on Wall Street weakened the currency’s position.
According to Australian data released during the Asian trading hours on Wednesday, the Consumer Price Index (CPI) increased from 7.3% to 7.8% in the fourth quarter. Market participants reconsidered the Reserve Bank of Australia (RBA) odds after this reading exceeded the market’s expectation of 7.5%.
AUD/USD daily rose nearly 1% and reached its highest level since mid-August at 0.7110.
According to Statistics New Zealand, the annual CPI remained steady at 7.2% in the fourth quarter. A new Prime Minister (PM) said inflation is putting pressure on households’ budgets, and he added more needs to be done to combat it. The NZD/USD exchange rate failed to gain bullish momentum following inflation data, ending the day slightly below 0.6500, compared with AUD/USD.
As of early Wednesday, the USD/CAD is expected to trade at 1.3350, down 25 basis points from Tuesday’s closed price. The BoC is expected to raise its policy rate by 25 basis points to 4.5%.
Market participants continue to attempt to predict how the new governor of the Bank of Japan (BoJ) will shape monetary policy as USD/JPY remains in a relatively tight range above 130.00. According to Bloomberg, according to Eiji Maeda, the BoJ will most likely take action within the first six months of a new governorship.
After falling toward 1.0830 in response to Tuesday’s US PMI data, the EUR/USD recovered to trade a few pips above 1.0900 in positive territory.
It’s the second straight day that the GBP/USD pair closed downwards on Tuesday, but it was able to hold above 1.2300. However, markets are keeping a close eye on the UK’s political situation as markets try to erase Tuesday’s loss early Wednesday.
Gold price dropped sharply in the early American session after fluctuating in a narrow channel for the first half of the day. On Tuesday, XAU/USD registered its highest daily close since April as the 10-year Treasury bond yield dropped below 3.5%. Early Wednesday, the pair remains above $1,930 in a consolidation phase.
The Bitcoin price dropped by more than 1% on Tuesday, but it found support quickly. At the time of press, BTC/USD posted small gains at around $22,700. Ethereum’s downward correction continued, erasing more than 4% before stabilizing slightly above $1,500 early Wednesday. As the Bank of Canada releases its monthly policy later today, markets expect them to raise their overnight rate by 0.25 percentage points to 4.50%.
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