TOKYO: The US dollar was steady on Tuesday as investors awaited a closely watched consumer inflation report later in the day, which could influence expectations for interest rate cuts by the Federal Reserve.
The Australian dollar also held its ground ahead of a policy announcement from the Reserve Bank of Australia (RBA).
The US dollar index — tracking the greenback against six major currencies, including the euro and yen — was unchanged at 98.497 as of 0046 GMT, after gaining 0.5 per cent over the past two sessions.
Earlier, the dollar had weakened when traders ramped up bets on monetary easing following US President Donald Trump’s dovish-leaning nomination to replace a Fed governor and similarly inclined potential picks for the Fed chair.
Meanwhile, some Fed officials have voiced concerns over labour market weakness, signalling their openness to a possible rate cut as soon as September.
Cooling inflation could strengthen expectations for a cut next month, but signs that tariffs are stoking price pressures might prompt the Fed to hold off. Markets currently price in an 89 per cent chance of a quarter-point cut on September 17.
“Risk-reward heading into US CPI this week is for a modest USD bounce, as any upside surprise will challenge market pricing of almost a full cut by September,” TD Securities strategists said in a note.
They added that a weaker-than-expected CPI reading is unlikely to significantly alter Fed expectations or the dollar, as the case for a larger 50-basis-point cut would likely require a further deterioration in the labour market rather than just a softer inflation figure.
A Reuters poll of economists projects core CPI to rise 0.3 per cent in July, pushing the annual rate up to 3 per cent.
The dollar edged up 0.1 per cent to 148.28 yen, while the euro was flat at US$1.1615.
On Monday, the dollar showed little reaction to Trump’s signing of an executive order extending a 90-day pause on planned steep tariff increases on Chinese imports — a widely anticipated move.
As US-China negotiations continue to avert triple-digit tariffs, a US official told Reuters that chipmakers Nvidia and AMD had agreed to allocate 15 per cent of their China sales revenue to the US government in exchange for export licences for semiconductors.
In offshore trading, the yuan was steady at 7.1935 per dollar.
The Australian dollar traded at US$0.6518, barely changed from Monday. Economists largely expect the RBA to deliver a quarter-point rate cut following softer-than-expected second-quarter inflation and a rise in unemployment to a three-and-a-half-year high. However, uncertainty has grown due to recent changes in the central bank’s decision-making process, with traders recalling last month’s surprise hold.
Bitcoin was also stable at around US$118,845, after hitting US$122,308.25 on Monday, just shy of its all-time high of US$123,153.22 set in mid-July.
