The U.S. dollar increased on Wednesday as investors braced for releasing the Federal Reserve’s September meeting minutes and upcoming economic data. The minutes could provide insights into the Fed’s decision to cut interest rates by a larger-than-expected 50 basis points. At the same time, Thursday’s Consumer Price Index (CPI) data may further shape expectations for future monetary policy. Against this backdrop, currency markets experienced heightened volatility, with concerns over China’s economic outlook weighing on commodity-linked currencies.
Dollar Gains on Anticipation of Fed Minutes
The greenback extended its rally, with the dollar index climbing to 102.76, its highest level since August 16. The advance came as traders anticipated the release of the Fed’s meeting minutes, which could reveal the intensity of the debate around last month’s interest rate cut. While the minutes may offer valuable context, they are somewhat overshadowed by recent robust U.S. jobs data, which has led the market to reconsider the likelihood of further aggressive rate cuts.
Currency strategist Marc Chandler of Bannockburn Global Forex emphasized the upcoming economic events: “The big stuff now, we’ve got the CPI tomorrow.” He added that attention is also on a scheduled announcement from China’s Ministry of Finance, set for Saturday, which could influence the market’s direction depending on the scope of any new fiscal measures.
Weaker Euro and Stronger Yen Amid Market Shifts
The euro extended its losses, dropping to a two-month low against the dollar at $1.0953. Meanwhile, the dollar rose 0.61% against the yen to match Monday’s high of 149.10. The yen’s movement has been particularly volatile following comments from Japan’s new Prime Minister, Shigeru Ishiba, who surprised markets by questioning the country’s readiness for further rate hikes. With an upcoming snap election on October 27 and the Bank of Japan’s policy meeting on the horizon, speculation over Japan’s monetary stance has added to the yen’s instability.
As currency markets reacted to these developments, the dollar’s strength became more pronounced. The U.S. dollar’s appeal as a safe-haven asset has been bolstered by expectations of continued monetary policy divergence between the U.S. and other major economies.
Commodity-Linked Currencies Struggle Amid China Concerns
Commodity-linked currencies, such as the Australian and New Zealand dollars, faced pressure due to ongoing concerns about China’s economic outlook. Both currencies declined on Wednesday, with the Aussie down 0.36% at $0.6721, and the New Zealand dollar—known as the kiwi—tumbling 1.14% to $0.6069, its lowest level in nearly two months.
The kiwi’s decline came after the Reserve Bank of New Zealand (RBNZ) cut interest rates by 50 basis points, surprising the market with a more dovish stance than anticipated. Lenny Jin, global FX strategist at HSBC, noted the “mounting near-term headwinds” for the New Zealand dollar, citing factors such as hawkish repricing for the Fed, geopolitical risks, and de-risking ahead of the U.S. election.
While China’s Ministry of Finance has scheduled a press conference on Saturday to discuss fiscal policy, expectations for significant stimulus remain muted following a lackluster announcement from the National Development and Reform Commission earlier in the week. This has done little to lift the outlook for the Australian dollar, although potential strong fiscal measures from China could still provide upside support.
Fed Speakers and Economic Data in Focus
In addition to the Fed’s minutes, the market is closely watching a series of speeches from Federal Reserve officials, including Dallas Fed President Lorie Logan and Chicago Fed President Austan Goolsbee. Logan’s comments on Wednesday highlighted the “still-real” upside risks to inflation, suggesting that while she supported last month’s larger rate cut, she favors more modest reductions going forward.
The economic calendar for the remainder of the week is packed, with Thursday’s CPI release being a key event. The data will be critical for assessing inflation trends and determining whether the Fed may pursue additional rate cuts in November. Traders currently see an 88% probability of a 25-basis-point cut at the next meeting, with roughly 50 basis points in total easing expected by year-end.
China’s Potential Stimulus: A Wild Card for Markets
While China’s fiscal policy announcement on Saturday could be a catalyst for market movements, its impact on currency markets remains uncertain. The anticipation of fiscal stimulus may offer some support to commodity currencies like the Australian dollar, but the extent of any rally will likely depend on the scope and specifics of the measures introduced.
Marc Chandler pointed out that although “we’re not seeing much of an effect here today in the dollar block,” any significant policy shift from China could change the outlook, especially for commodity-dependent economies.
The U.S. dollar’s upward trend reflects a combination of factors, including expectations for steady U.S. monetary policy, geopolitical risks, and concerns about global economic conditions. As traders await the Fed’s meeting minutes and CPI data, markets remain on edge, with the potential for significant shifts in sentiment. Meanwhile, the outlook for commodity currencies is clouded by China’s uncertain economic prospects and dovish signals from central banks like the RBNZ. As the week unfolds, the upcoming events will be crucial in determining the next moves in currency markets.