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US Dollar May Fall Further as Soft Inflation Cools Rate Hike Bets

US Dollar May Fall Further as Soft Inflation Cools Rate Hike Bets

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • US Dollar may fall further as soft CPI cools Fed rate hike bets
  • Yen down, Aussie Dollar higher as risk appetite firms in Asia
  • Canadian Dollar retracing lower after hitting 15-month high

A lull in top-tier European event risk is likely to see traders looking to US CPI data as the next important inflection point. The headline year-on-year inflation rate is expected to fall for a fourth consecutive month to register at 1.7 percent, the lowest since November 2016. A soft result may cool Fed rate hike speculation further, weighing on the US Dollar.

The Japanese Yen underperformed in otherwise quiet Asian trade as most regional stocks traded higher, pointing to a risk-on mood that put pressure on the standby funding currency. The Canadian Dollar likewise edged lower, correcting after closing at the highest level in 15 months against an average of its G10 FX counterparts yesterday.

The Australian Dollar edged higher, rising alongside local bond yields. With no clear catalyst to drive a hawkish shift in the RBA outlook readily apparent, the move was probably sentiment-derived. Investors’ upbeat mood translated into capital flows out of government debt securities, boosting rates and reinforcing an already supportive environment for the high-beta currencies.

Where will the US Dollar go in the next three months? See our forecast here!

Asia Session

US Dollar May Fall Further as Soft Inflation Cools Rate Hike Bets

European Session

US Dollar May Fall Further as Soft Inflation Cools Rate Hike Bets

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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