Dollar edges up against yen as investors wait on inflation data, Fed

NEW YORK : The dollar edged higher against the yen on Wednesday as investors awaited U.S. inflation data for May and the Fed’s interest rate decision next week, while the Canadian dollar jumped after the Bank of Canada hiked rates.

The U.S. central bank is expected to hold rates steady next Wednesday as it evaluates the impact of recent rate increases, though Fed fund futures traders are pricing for an additional rate hike in July.

Consumer inflation data on Tuesday is expected to show that prices rose by 0.30 per cent in May.

"We expect a fair degree of consolidation ahead of the Fed decision next week," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto. "That CPI number’s going to be critical for the Fed decision as well. To me it makes sense that we don’t see large bets placed either way at this point."

The dollar gained 0.31 per cent to 140.10 yen, while the euro rose 0.11 per cent against the U.S. currency to $1.0703. The dollar index was little changed on the day at 104.07.

Data on Wednesday showed that the U.S. trade deficit widened by the most in eight years in April as imports of goods rebounded while exports of energy products declined.

Traders have also priced out most expectations that the Fed will cut rates this year as inflation remains above target.

"There is persistence and resilience in inflation in the U.S., but also in much of the G10, as well, meaning that central banks are likely to be cautious," said Rabobank chief strategist Jane Foley.

The Canadian dollar strengthened after the Bank of Canada hiked its overnight benchmark rate to 4.75 per cent, the highest level in 22 years.

The U.S. dollar was last down 0.23 per cent against the loonie at C$1.3371.

Although the rate hikes by foreign central banks could put pressure on the greenback, the prospect of an additional Fed rate increase in July is likely to limit losses.

The Fed next week may indicate that it is not done raising rates, and "that might short circuit the idea of the dollar getting hit because the Fed is going to be out of step with Canada, Australia and probably the ECB during this month’s meeting, because they’ll still have the idea that there’s more to come," said Lou Brien, market strategist at DRW Trading in Chicago.

The Australian dollar turned negative a day after the Reserve Bank of Australia raised rates by a quarter-point to an 11-year high of 4.1 per cent.

Australia's central bank chief on Wednesday stepped up a warning of more rate hikes ahead to temper rising price pressures.

The Australian currency was last down 0.25 per cent at $0.6657, after earlier reaching $0.6718, the highest since May 11.

The offshore Chinese yuan reached its weakest level against the U.S. dollar since Nov. 30 after data earlier on Wednesday showed that China's exports shrank much faster than expected in May and imports fell as manufacturers struggled to find demand abroad and domestic consumption remained sluggish.

The yuan was last at 7.1465 against the greenback.

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Currency bid prices at 3:05PM (1905 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.0700 104.0800 +0.01 per cent 0.560 per cent +104.2900 +103.6400

Euro/Dollar $1.0703 $1.0693 +0.11 per cent -0.10 per cent +$1.0740 +$1.0669

Dollar/Yen 140.1000 139.6450 +0.31 per cent +6.84 per cent +140.2250 +139.0250

Euro/Yen 149.96 149.29 +0.45 per cent +6.89 per cent +149.9900 +148.6400

Dollar/Swiss 0.9097 0.9077 +0.24 per cent -1.60 per cent +0.9100 +0.9044

Sterling/Dollar $1.2440 $1.2423 +0.16 per cent +2.88 per cent +$1.2500 +$1.2395

Dollar/Canadian 1.3371 1.3402 -0.23 per cent -1.31 per cent +1.3426 +1.3321

Aussie/Dollar $0.6657 $0.6672 -0.25 per cent -2.37 per cent +$0.6717 +$0.6643

Euro/Swiss 0.9736 0.9703 +0.34 per cent -1.61 per cent +0.9737 +0.9691

Euro/Sterling 0.8601 0.8604 -0.03 per cent -2.75 per cent +0.8612 +0.8585

NZ $0.6041 $0.6079 -0.58 per cent -4.81 per cent +$0.6097 +$0.6031

Dollar/Dollar

Dollar/Norway 11.0330 11.0960 -0.52 per cent +12.47 per cent +11.1330 +10.9880

Euro/Norway 11.8122 11.8554 -0.36 per cent +12.56 per cent +11.8950 +11.7859

Dollar/Sweden 10.8937 10.9181 +0.01 per cent +4.67 per cent +10.9448 +10.8178

Euro/Sweden 11.6601 11.6586 +0.01 per cent +4.58 per cent +11.6985 +11.6138

(Additional reporting by Amanda Cooper in London; Editing by Sharon Singleton, Emelia Sithole-Matarise and Nick Macfie)