Dollar Up, But Moves Small As Focus Firmly On Jackson Hole

The dollar was up on Tuesday morning in Asia after its sharpest one-day fall since May 2021. However, investors kept moves small ahead of a U.S. Federal Reserve symposium that could herald the beginning of asset tapering and interest rate hikes.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.10% to 93.062 by 10:33 PM ET (2:33 AM GMT).

The USD/JPY pair inched up 0.04% to 109.72.

The AUD/USD pair inched up 0.02% to 0.7210 and the NZD/USD pair inched up 0.03% to 0.6892.

The USD/CNY pair inched up 0.04% to 6.4832 while the GBP/USD pair inched down 0.01% to 1.3716.

"A positive risk backdrop has pushed flows out of the dollar," with positive analyst commentary around oil and cyclical stocks also boosting the broad mood, Pepperstone head of research Chris Weston told Reuters.

"But I wouldn't be going short dollars just because of this... it could easily flip up going into Jackson Hole," he added, referencing the Fed symposium that will take place from Aug. 26 to 28.

Other investors are doubtful whether the Fed will provide any hints on when it will begin asset tapering during the symposium, which will put pressure on the greenback as it has gained alongside tapering expectations.

"The weight of positioning and expectations leaves the dollar exposed in the event Jackson Hole does not produce a clear and imminent Fed taper signal. But any setback likely proves short-lived if key Fed officials stress confidence that 'substantial further progress' is on the horizon and that a slowing of asset purchases could commence in coming months," Westpac analysts said in a note.

In Asia Pacific, New Zealand remains in lockdown until Friday. However, the New Zealand dollar got a small lift from rising bets that the Reserve Bank of New Zealand will hike interest rates in October.

"On balance, the market seems to be slanting toward the view that New Zealand will beat Delta, and if that is the case, that should put interest rate hikes and carry back on the table later in 2021," ANZ Bank analysts said in their own note.

"The market has seen the New Zealand dollar bounce off $0.68 when all the chips were down, and that'll likely be a solid base of support for now,” the note added. 

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