Jan 6 2025: The dollar eased slightly on Monday but remained near a two-year high as markets awaited U.S. economic data, including December’s nonfarm payrolls report, for insights into the Federal Reserve’s interest rate plans.
The Canadian dollar gained 0.36% against the U.S. dollar to C$1.4395 following reports suggesting Canadian Prime Minister Justin Trudeau may announce his resignation soon. Analysts believe markets have largely priced in the potential for new elections, which could bring clarity to Canada’s political landscape.
Chinese Yuan Weakens Further
The Chinese yuan fell to a 16-month low, with the onshore yuan sliding to 7.3289 per dollar, while its offshore counterpart edged up 0.06% to 7.3558. This decline followed the People’s Bank of China’s (PBOC) decision to stop aggressively defending the 7.3-per-dollar threshold, a level it had supported throughout December.
Ray Attrill, Head of FX Strategy at National Australia Bank, noted the PBOC’s move could signal a shift to a higher trading range for the yuan, potentially impacting other Asian currencies and the Australian and New Zealand dollars.
Before Monday’s market open, the PBOC set the midpoint rate at 7.1876 per dollar, allowing the yuan to trade within a 2% band.
Despite the yuan’s depreciation, the Australian dollar rose 0.2% to $0.6227, while the New Zealand dollar gained 0.22% to $0.56245, showing limited reaction to the yuan’s weakening.
Focus on U.S. Data and Policy
Investors are keenly watching Friday’s U.S. jobs report for signs of economic health, as well as speeches from Federal Reserve policymakers expected this week. These events may reinforce recent statements indicating that the Fed’s fight against inflation is ongoing, limiting the scope for aggressive rate cuts in 2025.
The dollar index dipped slightly to 108.89 after reaching its highest level since November 2022 last week. The euro was steady at $1.0310, while sterling rose 0.13% to $1.2440. The yen weakened by 0.24% to 157.66 per dollar.
Uncertainty Around Trump’s Economic Plans
Market sentiment remains cautious ahead of U.S. President-elect Donald Trump’s inauguration on January 20. Plans for significant import tariffs, tax cuts, and immigration restrictions add to the uncertainty.
Ray Attrill highlighted that this unpredictability supports the dollar’s strength. “The U.S. dollar is unlikely to face significant downside risk in the current environment,” he said. “Betting against its momentum requires significant confidence.”
