Hawkish Fed Rhetoric Fails To Strengthen The Dollar; The Australian Currency Rises

By Rae Wee SINGAPORE (Reuters) - The dollar failed to gain ground on Thursday, despite Federal Reserve governors reiterating their commitment to battling inflation last month, while the Australian currency rose as China loosened curbs on Australian coal imports.

The minutes of the Federal Reserve's December policy meeting, released overnight, revealed that while officials agreed that the central bank should slow the pace of its aggressive interest rate increases, they remained focused on containing inflation and were concerned about any “misperception” in financial markets that their commitment was waning.

On Wednesday, Minneapolis Fed President Neel Kashkari also said that the Fed's target interest rate would peak at 5.4%, which is higher than current market predictions of just under 5%.

However, this did not help the US dollar, which fell 1.4% versus the Canadian dollar overnight.

The pound was last flat at $1.2062, having gained 0.76% versus the dollar in the previous session, while the euro gained 0.19% to $1.0624, after a more than 0.5% increase overnight.

“From the Fed's perspective, it's very, very early to be thinking about rate reduction in 2023, which is certainly what the market still thinks,” said Ray Attrill, National Australia Bank's head of FX strategy (NAB).

Economic statistics published on Wednesday also indicated that job opportunities in the United States declined less than predicted in November, despite the fact that a survey conducted by the Institute for Supply Management (ISM) suggested that U.S. manufacturing output contracted again in December.

“As we approach Friday's payrolls, the message is that the job market is in really bad shape,” said Attrill.

The US dollar index declined 0.14% to 104.06 against a basket of currencies, after a 0.5% drop on Wednesday.

The Australian dollar rose 1.7% overnight on news that China's state planner has permitted three central government-backed utilities and the country's top steelmaker to resume coal imports from Australia, the first such move since Beijing imposed an unofficial ban on coal trade with Canberra in 2020.

The Australian dollar was last stable at $0.6835, while the New Zealand dollar advanced 0.11% to $0.6298 after rising 0.7% the previous day.

“The Aussie dollar has clearly benefited from the coal narrative,” NAB's Attrill said, adding that most other commodity currencies were also strengthened.

The Japanese yen rose 0.5% to 131.97 per dollar on Thursday, erasing a 1.2% drop overnight, as traders wagered the Bank of Japan would soon ditch its contentious yield curve control.

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