Asian Forex Trade Reflects Growing Support for Fed Rate Hike

The Asian Forex session featured a two-sided trade on Wednesday although the general tone still favored an upside bias for the U.S. Dollar against most major currencies. The Greenback continued to be underpinned by hawkish commentary from Fed officials last Friday and fresh upbeat U.S. economic data from Tuesday. Both pieces of news enhanced expectations of a near-term rate hike by the Federal Reserve.

After rising to its highest level since August 9 on Tuesday, the September U.S. Dollar index futures contract is trading higher at 96.05, up 0.009 or +0.01%. The index was boosted on Tuesday after the Conference Board said its consumer confidence index rose to its highest level in nearly a year in August. Other U.S. housing data also indicating an improving economy.

Overall, the index remained supported by hawkish comments from Fed Chair Janet Yellen and Fed member Stanley Fischer. Both Yellen and Fischer helped boost the odds of a rate hike before the end of the year.

Since the next Fed rate hike will be data dependent, traders have shifted their focus on Friday’s U.S. Non-Farm Payrolls report for August. On Wednesday, investors will get the opportunity to gauge the strength of the economy when ADP releases its report on private sector jobs growth. Traders will also be watching the Chicago purchasing managers’ index for signs of strength.

In other news, the USD/JPY was trading higher at 103.234, up 0.284 or +0.27%. It was being boosted by the strengthening U.S. economy and another round of verbal interventions from Japanese authorities. On Tuesday, Japan’s Chief Cabinet Secretary Yoshide Suga told Reuters that the government will respond “appropriately” to unwelcome Yen gains.

The AUD/USD was under pressure on Wednesday, finishing at .7502, down 0.0006 or -0.08%. Volume and volatility are below average, but sellers are leading the Australian Dollar lower in response to increasing odds for a Fed rate hike.

Traders are also squaring positions ahead of Friday’s U.S. Non-Farm Payrolls report. Before this report, Australian investors will get the opportunity to react to the last retail sales data and China’s Manufacturing report on Thursday.

Earlier today, the Private Sector Credit report for July came in as expected at 0.4%. In addition, Reserve Bank of Australia Assistant Governor Guy Debelle said that the Forex market suffers “from a lack of trust in its functioning” before giving a speech outlining the Global Code of principles being carried out by the Bank for International Settlements (BIS).

The New Zealand Dollar finished higher on Wednesday, recovering from the previous day’s sharp sell-off. The NZD/USD closed at .7251, up 0.0033 or +0.46%.

Earlier on Wednesday, the ANZ bank’s survey for August showed a net 15.5 percent of companies were optimistic about the coming year, which was fractionally lower than July. But businesses were slightly more confident for themselves, with nearly 34 percent expecting an improvement, compared with 31.4 percent in July. The building and service sectors were the most confident, but agricultural based businesses trailed the survey although they were much less pessimistic.