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The U.S. dollar declined Tuesday. What about the Aussie? 


The U.S. dollar tumbled down today, trading in the red. Despite that, it remained close to high levels hit in the previous session thanks to positive U.S. services data. The latter hinted that the Federal Reserve might stick to a higher interest rates policy in the foreseeable future.

On Monday, the greenback experienced its biggest surge in two weeks. However, the dollar index decreased by 0.1% at 105.05 against the basket of six major currencies today. USD had briefly dropped to 104.1 on Monday, reaching that level for the first time since June 28. But it hit high later after data showed that U.S. services industry activity unexpectedly soared last month.

You-Na Park-Heger, the FX Analyst at Commerzbank, noted that the longer the American economy is robust, the more doubts are likely going increase as to whether the United States will actually face a recession in 2023. Traders also speculate about the central bank’s policy decision.

The Federal Open Market Committee will announce its decision about future rate hikes on December 15. Investors bet on a half-point increase to a 4.25-4.5% policy band, as well as a terminal rate of a bit higher than 5% in May.

During this session, investors focused on the Aussie as it rebounded from its one-week lows. The Reserve Bank of Australia hiked rates for the eighth consecutive time, bolstering the currency.

Consequently, the Australian dollar surged forward by 0.46% to $0.6729, recovering some 1.4% losses from the previous session. The RBA stated that its aim wasn’t policy tightening. However, inflation is still high in the country.

Matt Simpson, a senior analyst at brokerage City Index in Brisbane, noted that the bank has spoken of a pause publicly. But it may not be as close to doing that as analysts thought.

How is the Euro faring? 

The common currency rallied by 0.2% against the U.S. dollar. It exchanged hands at $1.0517 after skyrocketing to its highest level since late June in the previous session.

On Tuesday, European Central Bank policymaker Constantinos Herodotou stated that the ECB would increase interest rates again. For now, they are very near to their neutral level, though. Moreover, new data showed that German industrial orders rebounded more than expected in October. However, that news failed to boost the euro.

Francesco Pesole, the FX strategist at ING, thinks that the Western price cap on Russian seaborne crude might show its impact on the energy market in the coming days. The latter crude came into force yesterday. According to Pesole, the risks of a new surge in energy prices are non-negligible, given an expected drop in temperatures in the eurozone from this week. The common currency is highly exposed to such risks.

What about the EM currencies? 

Asian emerging currencies declined on Tuesday, along with stocks. Regional inflation hit the markets hard. Concerns about the U.S. Federal Reserve’s policy decisions and a strengthened greenback also weighed on the sentiment.

In the Philippines, annual inflation jumped by 8.0% in November from a year earlier. This news supports the case for a half-percentage point interest rate increase this month. Analysts at Goldman Sachs stated that considering the surging inflation, as well as increasing pressure from core services inflation, they expect the Philippines’ central bank to announce at least a 50 basis points rise at its December meeting.  

The bank has already hiked rates six times in 2022, aiming to meet its annual inflation target of 2%-4%. The governor declared last week that the bank planned another 25 bps or 50 bps hike.

Meanwhile, the peso traded flat on Tuesday. The currency has shaved off almost 9% thus far this year. On the other hand, stocks in Manila jumped by 2.6%.

Traders’ uncertainty about the U.S. Federal Reserve’s interest hike intentions overshadowed their optimism about China’s decision to relax its zero-COVID strategy. According to Poon Panichpibool, a markets strategist at Krung Thai Bank, the greenback might peak over the medium-to-long term. That would help Asian currencies to outperform the USD next year.

On Tuesday, South Korea’s won dropped by 1.8%. Indonesia’s rupiah also plummeted by 0.7%, with India’s rupee declining by 0.6%. Moreover, Malaysia’s ringgit tumbled by 0.3%, while Thailand’s baht fell by 0.9%. The shares in Bangkok plunged by 0.4%. However, the Singapore dollar managed to climb by 0.1%. It was the only gain among Asian EM currencies.

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