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Euro Weighed Down

On Wednesday, the euro fell to a five-week low as prospects for peace in Ukraine dimmed, while the kiwi swung back and forth as New Zealand’s central bank announced the most significant rate hike in two decades to combat inflation.

While the Reserve Bank of New Zealand’s 50 bases point hike exceeded many economists’ estimates, it was within traders’ expectations, and policymakers mitigated the move by not raising their projected rate peak.

The Bank of Canada is likely to raise interest rates for the first time since 2000 when it meets later on Wednesday, as authorities worldwide ramp up attempts to curb rising price pressures. After the Reserve Bank of New Zealand raised its official cash rate (OCR) to 1.5 percent, the kiwi spiked to $0.6902.

The currency, however, retreated from resistance near its 200-day moving average, closing about 1.5 percent lower than its intraday high of $0.6811, as the central bank portrayed its measures as deferring rises without changing its view.

Traders were undeterred by a bit of hardening in Japanese policymakers’ tone regarding the rapidly dropping yen, which was under significant pressure at 125.60 per dollar, just a whisker away from breaking through a critical support level of 125.86.

Core CPI rose 0.3 percent in March, compared to a projected 0.5 percent increase, thanks to a second consecutive monthly fall in used car costs. But, with headline annual inflation at an eye-watering 8.5 percent and more rate hikes on the way, it wasn’t enough to drive investors away from the dollar.

On Tuesday, Russian President Vladimir Putin described on-again, off-again peace talks as “a dead-end situation,” putting pressure on the euro and sterling, which have been vulnerable to concerns over the war’s economic consequences.

Overnight, the euro fell to $1.0821, and in the Asian session, it was hovering around $1.0835. Sterling, hovering at about $1.30, remained steady at $1.3001.

The Australian dollar and the Chinese yuan fell marginally after a surprising drop in China’s imports fueled market concerns about dwindling demand.

Imports denominated in dollars declined 0.1 percent, the first drop since August 2020, against expectations of an increase of 8%, and the Australian dollar sank 0.1 percent to $0.7445.

Following the report’s release, the yuan dipped slightly but held firm at 6.3661 per dollar for the day. In Asia, the Canadian dollar strengthened to C$1.2614 after breaking through its 200-day moving average. Yet, traders are nervous ahead of the Bank of Canada meeting, mainly because the market is modestly short USD/CAD.




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