The Yen stayed near its May lows against the US Dollar on Wednesday, levels that recently triggered Japanese currency intervention, as markets assessed the possibility of renewed escalation in the Iran conflict.
Elsewhere, the New Zealand Dollar rose after the Reserve Bank surprised markets by coming close to a rate hike and signalled that future increases may need to come sooner and be larger than previously expected.
Meanwhile, the Australian Dollar reversed earlier gains and moved into negative territory after inflation data came in weaker than anticipated.
The US Dollar, seen as a safe-haven currency, held steady after inching higher against major peers the previous day, as US strikes on Iran reduced hopes for a quick de-escalation and a reopening of the strategically important Strait of Hormuz.
US Secretary of State Marco Rubio indicated that reaching a deal to end the conflict could take “a few days.”
In Japan, the Yen remained stable at 159.29 per Dollar on Wednesday, close to the 160 level that many traders consider a key threshold that could prompt Japanese intervention to support the currency, Reuters reports.
Bank of Japan Governor Kazuo Ueda adopted a slightly hawkish tone on Wednesday, warning that an oil shock driven by conflict could prove persistent amid elevated inflation expectations and rising wages.
Market pricing currently assigns around a 70% probability to a quarter-point rate hike at the BOJ’s upcoming policy meeting on 15th-16th June, according to LSEG data.
The Dollar index, which tracks the US currency against the Yen and five other major peers, was largely unchanged at 99.082 after rising 0.15% on Tuesday.
The Euro edged slightly higher to $1.1642.
Whereas the New Zealand Dollar rose 0.7% to $0.5876, recovering losses after a 0.6% decline in the previous session.
The Reserve Bank of New Zealand held the official cash rate steady in a split decision, with three policymakers voting for a 25-basis-point increase and three voting to keep rates unchanged. Governor Anna Breman cast the deciding vote.
“On balance, the OCR will most likely need to increase sooner and by more than envisaged in the February Monetary Policy Statement,” as per the RBNZ statement.
The Australian Dollar slipped 0.1% to $0.7159, erasing earlier gains after data showed annual inflation cooled to 4.2% in April, down from 4.6% in March and below analysts’ expectations of 4.4%.
The weaker inflation print followed soft employment data last week, with markets now pricing in just 20 basis points of additional rate hikes for the rest of the year.