Dollar near one-month low to yen before inflation test; Aussie, kiwi slide

TOKYO (Reuters) – The dollar trod water against major peers on Wednesday after weakening in the past three days, and traded near a one-month low to the yen, with investors awaiting U.S. inflation data for a clue to when the Federal Reserve might raise interest rates.

The safe-haven yen also benefited from global stocks retreating from a record peak as rising oil prices stoked inflation worries.

Fears of potential contagion from China’s property market woes also fuelled the search for safer assets, and the riskier Australian and New Zealand dollars fell.

The dollar eased slightly to 112.83 yen, threatening to dip back to Tuesday’s low of 112.73, a level last seen on Oct. 11.

The dollar index, which measures the greenback against six rivals, edged back to 94.053, after descending from a more than one-year peak at 94.634 that was briefly reached on Friday.

The euro slipped 0.13% to $1.15805, but held on to most of a three-day gain that had brought it close to the month’s high of $1.16165.

U.S. consumer price index data for October is set to be released later in the global day. Economists polled by Reuters expect a 0.4% rise in the October index, accelerating from a 0.2% rise in the previous month, with the closely watched year-on-year core measure gaining 0.3 percentage point to 4.3%, well above the Fed’s average annual 2% inflation target.

Global inflation readings are under close scrutiny for evidence of whether rising price pressures are accelerating or showing signs of waning, with policy makers at the Fed and elsewhere still largely holding to the view that current high prices will be transitory.

“We’ll need to see a print of 0.8% month-on-month to see the dollar index break out of the top of the range of 94.50,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

Although the dollar has been trending lower against the yen, “if U.S. CPI comes in hot then this poses a risk to USDJPY shorts,” he wrote.

China’s October factory gate prices rose at the fastest pace since 1995, beating forecasts and further squeezing profit margins for producers grappling with soaring coal prices and other commodity costs.

Data on Tuesday showed U.S. producer prices increased solidly in October, indicating that high inflation could persist amid tight supply chains related to the pandemic.

U.S. Treasury real yields fell sharply as traders hedging against the possibility of rising prices scooped up Treasury Inflation Protected Securities (TIPS).

Fed officials on Tuesday said it was not clear that high inflation will become more entrenched than expected.

San Francisco Fed President Mary Daly said it would be mid-2022 before there is more clarity on the employment and inflation outlook. Minneapolis Fed President Neel Kashkari said he believes the forces keeping people out of the labour market and pushing up prices will be temporary.

Meanwhile, U.S. President Joe Biden met with Fed Governor Lael Brainard as a potential next Fed Chair. She would be considered a dovish pick.

“Brainard’s possible nomination as Fed Chair chipping at the (dollar),” Westpac strategists wrote in a research note.

“Otherwise, the underlying picture remains USD supportive,” and dips in the dollar index to the mid-93 level are a buying opportunity, they said.

Hammered last week after the Bank of England’s surprise decision to keep rates unchanged, sterling has been stable this week and last bought $1.35495, up from Friday’s more than one-month low of $1.3425.

The Aussie slid 0.33% to $0.7355, and touched $0.73545 for the first time since Oct. 13.

New Zealand’s kiwi dropped 0.36% to $0.7104.

Concerns of contagion in China’s ailing property sector have flared again, with the Fed sending its first direct warning about potential global damage.

Evergrande faces a deadline Wednesday to pay an offshore bond, and Kaisa Group pleaded on Tuesday for help to pay loans, workers and suppliers.

In cryptocurrencies, bitcoin hovered below the all-time high of $68,564.40 marked on Tuesday, last changing hands at around $66,500.

Ether traded at $4,712.92, also staying within sight of Tuesday’s record peak at $4,842.65.

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