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Greenback gains, Aussie jumps on RBA rate hike - REUTERS

JUNE 07, 2023

NEW YORK, June 6 (Reuters) - The U.S. dollar gained against the euro and yen on Tuesday as investors focused on the likelihood that the Federal Reserve will continue hiking rates, while the Aussie jumped after the Reserve Bank of Australia (RBA) surprised with a rate increase.

Fed officials are in a blackout period ahead of the U.S. central bank's June 13-14 meeting and the next major economic release will be the consumer price report for May on June 13.

“We’re waiting to see if inflation is going to provide some upside surprises,” said Edward Moya, senior market analyst at OANDA in New York. However, “with more people thinking that June is not really a live meeting, we’re not seeing the biggest moves.”

The Fed is seen as likely to pause in June as it evaluates the impact of higher rates on the economy. Fed funds futures traders see the Fed as likely to then resume rate increases, with a 66% chance of an at least 25 basis-point increase in July, according to the CME Group's FedWatch Tool.

The euro was last down 0.28% against the dollar at $1.0679 and the greenback gained 0.07% to 139.66 yen . The dollar index was up 0.26% at 104.25.

The U.S. currency was buoyed by data on Friday showing that employers added 339,000 jobs in May, though a surge in unemployment to a seven-month high of 3.7% suggested an easing labor market.

It turned negative, however, after a report on Monday showed that the U.S. services sector barely grew in May as new orders slowed, pushing a measure of prices paid by businesses for inputs to a three-year low.

The Aussie hit its highest since mid-May on Tuesday after the Reserve Bank of Australia raised interest rates by a quarter-point to an 11-year high of 4.1%, and warned that further tightening may be required to ensure that inflation returns to target.

“The RBA is not just necessarily going to be one and done, its probably going to have to do more tightening and that’s going to keep the interest rate differential a lot closer than some people were thinking,” said Moya.

The Australian currency was last up 0.60% at $0.6655.

The RBA's surprise move could also throw extra focus onto the Bank of Canada's policy meeting on Wednesday after it refrained from rates rises in March and April.

"A 25bp BoC rate hike tomorrow ... would probably cause ripples across core bond markets around the world and could keep the dollar bid on the view that the Fed might be closer to hiking than first thought," ING's global head of markets Chris Turner said.

The U.S. dollar was last up 0.03% against its Canadian counterpart at C$1.3450.


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