The dollar held steady on Wednesday as traders reduced riskier bets in emerging markets, awaiting an interest rate decision from Canada and U.S. services data.
The Swiss franc and yen also benefited from this sentiment, with the yen receiving an additional boost after Bloomberg News reported that the Bank of Japan might consider reducing bond buying at its policy meeting next week.
In early Asian trade, the yen eased 0.2% to 155.27 and was at 168.74 to the euro, after a 1% jump against the common currency overnight—its largest rise since Japan’s FX market intervention a month ago.
“We expect further yen short covering ahead of the BOJ’s June 14 policy decision,” said Rabobank strategist Jane Foley in a client note.
Data on Wednesday showed that Japanese real wages fell for the 25th consecutive month in April, as inflation outpaced nominal pay rises. The yen is the worst-performing G10 currency this year, and on Tuesday, BOJ Deputy Governor Ryozo Himino emphasized the need for vigilance regarding the yen’s weakness and its impact on the economy and inflation.
The Swiss franc rose for the fourth consecutive session against the dollar overnight and, at 0.8902 per dollar, is nearing its 200-day moving average. Other major currencies eased slightly against the dollar, despite falling U.S. bond yields.
The euro was steady in the Asia session at $1.0878, and sterling was at $1.2770, both slightly softer than the previous day. The Australian dollar was marginally weaker at $0.6443, with GDP data due and Westpac forecasting annual growth at just 1%, the slowest pace since 1991, excluding the pandemic years. Australia’s top central banker indicated that growth in the March quarter was expected to be weak due to high interest rates restraining demand.
The New Zealand dollar remained steady at $0.6173, while the Canadian dollar was stable at C$1.3678 per dollar.
Markets are pricing a 75% chance of a 25 basis point rate cut in Canada, which would be the first among G7 nations in this cycle. Traders will be looking for signals of further cuts. U.S. services ISM and partial jobs data are also due.
Emerging markets have experienced turbulence recently. India’s rupee fell to a seven-week low after Narendra Modi’s re-election with a slimmer margin than expected. South Africa’s rand wavered after the African National Congress lost its parliamentary majority for the first time in 30 years. The Mexican peso tumbled more than 4% against the dollar and nearly 6% against the yen since the ruling Morena party was re-elected and, in coalition, approached two-thirds majorities in both Congress chambers.
Heavy selling of the peso against the yen indicated investors pulling back from popular “carry” trades, said Pepperstone’s head of research Chris Weston, due to uncertainty over Mexico’s currency outlook. The Morena party’s congressional majority could lead to major structural reforms and increased government control over businesses, potentially reducing Mexico’s standing as an international hub.
