By Kevin Buckland
TOKYO (Reuters) – The Australian dollar sank to a four-month low on Tuesday after the central bank softened its tone on the inflation outlook, raising expectations for an earlier interest rate cut.
The US dollar was steady against its major rivals and edged to its strongest this month against the yen as traders looked ahead to Wednesday's US inflation reading for further information. about the pace of Federal Reserve discounting.
It fell 0.68% to $0.63975 as of 0620 GMT, and dipped earlier to $0.6380, putting it within striking distance of Friday's low of $0.6373, a level not seen since August 5.
The New Zealand dollar fell in sympathy, down 0.55% to $0.5833.
The Reserve Bank of Australia kept rates steady as expected, but noted that the board had gained “some confidence” that inflation was returning to target.
The statement left out the previous line that the RBA “does not regulate anything in or out, other than policy which needs to be limited.”
“The RBA has just removed its hawkish bias, which is an important first step towards recognizing cuts that markets are already pricing in for next year,” said Matt Simpson, senior market analyst at City Index.
“The question now is whether they will go into a cut in Q1.”
Exchanges now mean there is more than a 50% chance of a rate cut in February, with the first discount exceeding full price by April next year.
The US dollar slipped 0.1% to 151.075 yen after earlier climbing to 151.55 yen for the first time since November 28.
The , which measures the currency against the yen and five other major peers, was down 0.1% to 106.05.
It had climbed to a two-year high of 108.09 on November 22, lifted by expectations that Donald Trump's election victory would drive US growth and lift inflation, which could slow the Fed's rate cuts. .
While markets have priced in a quarter-point Fed rate cut on Dec. 18 as near-certainty, the consumer price index due on Wednesday could shed some light on what consumers have in store. make room policy for discount next year.
“The case for 'US Touch', and the USD upside, remains strong,” said Michael Brown, senior research strategist at Pepperstone.
“I would still be a buyer for any USD dips.”
Beyond the US CPI, the main events of interest for investors this week are Thursday's European Central Bank meeting, where a quarter-point cut has been mooted, and the Central Labor Conference China's closed-door economy, which sets key policy targets and intentions for. the following year.
The euro added 0.12% to $1.0566, while sterling rose 0.09% to $1.27625.
The yuan strengthened about 0.35% to 7.2433 per dollar in offshore trade, supported by Monday's surprise shift in Beijing's monetary policy stance toward more easing to stimulate the ailing economy.
The currency was hit by data showing Chinese exports were slower than expected last month and imports fell unexpectedly.
Elsewhere, the Bank of Canada and the Swiss National Bank will decide on policy on Wednesday and Thursday, respectively, with deep rate cuts expected from both.
Against Canada, the US dollar rose to its strongest level since April 2020 at C$1.41895.
The US currency was down 0.2% to 0.8772 Swiss franc.
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