Dollar holds gains on economic data, Fed bets; Aussie advances before RBA

TOKYO: The dollar held gains on Tuesday as positive economic readings and shifting expectations for Federal Reserve policy outweighed concerns about another U.S. government shutdown.

The Australian dollar rose ahead of an expected rate hike by the nation’s central bank, the first of three major central bank decisions this week.

The yen remained lower as Japanese Finance Minister Satsuki Katayama tried to play down comments from the prime minister that there were benefits to a weaker currency.

The greenback gained overnight after US manufacturing data from the Institute for Supply Management (ISM) showed a return to growth, though a key jobs report may be delayed due to an impasse in Washington. Geopolitical tensions ratcheted down as the US reached a trade deal with India and said nuclear talks will resume with Iran.

“The domestic story coming from the U.S. was also supportive for the dollar in terms of that big surprise from the ISM,” Rodrigo Catril, a currency strategist at National Australia Bank, said on a podcast.

“The Indian story is interesting, but really it’s about this idea that the tensions between the U.S. and Iran are seemingly easing, and all this pressure and threats that President Trump has imposed has brought Iran to the table,” he added.

The dollar index , which measures the greenback against a basket of currencies, was little changed at 97.50, after a two-day advance.

The euro was up 0.1% at $1.1804, and the yen tacked on 0.1% to 155.53 per dollar.

The dollar has been on an upswing since U.S. President Donald Trump nominated Kevin Warsh as the next Federal Reserve chair. Analysts assume Warsh will be less likely to press for all-out rapid rate cuts than some other candidates who had been in the running.

Trump on Monday announced a trade deal with India that slashes tariffs on Indian goods in exchange for India halting Russian oil purchases and lowering trade barriers. On the geopolitical front, Iran and the U.S. are due to resume nuclear talks on Friday in Turkey, with Trump warning that bad things would probably happen if a deal could not be reached.

The Reserve Bank of Australia is expected to resume its rate-hiking cycle after three rate cuts last year. Both the European Central Bank and the Bank of England are expected to keep policy rates on hold when they announce their latest decisions on Thursday.

The Australian dollar rose 0.3% to $0.6965. New Zealand’s kiwi strengthened 0.3% to $0.6017, while sterling rose 0.1% to $1.3676.

Investors have sold the yen and Japanese government bonds in the run-up to an election on February 8 on expectations of more expansionary fiscal policy should Prime Minister Sanae Takaichi win a strong mandate.

Finance Minister Katayama on Tuesday defended Takaichi’s recent comments highlighting the benefits of a weaker yen, stating that the premier had referenced “what is written in textbooks.”

In cryptocurrencies, bitcoin gained 0.5% to $78,840.02, and ether rose 0.1% to $2,343.94.