Asian session review: US dollar is showing positive dynamics

During today's Asian trading, the US dollar rose markedly against major currencies, retreating from a 13-month low, while market participants expect new clues about the size of the Fed's interest rate cut next month.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.40% to 100.95. Investors are confident that the Fed will ease monetary policy at the September meeting, but uncertainty remains about the size of the rate cut - by 0.25% or 0.5%. According to the CME FedWatch Tool, markets see a 34.5% probability of a 0.5% rate cut in September (down from 38% the week before), and a 65.5% probability of a 0.25% rate cut (up from 62.0% the week before), with a 1% rate cut expected by the end of the year. The next catalyst that may affect these expectations will be the publication of GDP data for the 2nd quarter (on Thursday) and the core personal consumption expenditures (PCE) index - the Fed's preferred inflation measure. Economists expect GDP growth to accelerate to 2.8% q/q from 1.4% q/q in Q1, while core PCE grew by 0.2% m/m and 2.7% per annum after increasing by 0.2% m/m and 2.6% per annum in June.

The Australian dollar briefly jumped to an eight-month high against the US dollar, but then returned to the opening level of the session. The currency was supported by Australian inflation data, which reflected a slowdown in price growth to a 4-month low. According to the report, the CPI rose by 3.5% per annum in July after an increase of 3.8% per annum in June. Economists had expected an increase of 3.4% per annum. On a monthly basis, the CPI remained unchanged, as falling electricity and gasoline prices were offset by an increase in the cost of rent and food. Meanwhile, the measure of core inflation, the trimmed mean, slowed 3.8% per annum from 4.1% per annum in June. CPI excluding volatile items and holiday travel rose by 3.7% per annum after an increase of 4.0% per annum in June. The latest reading was the lowest since January. However, inflation remains outside the RBA's target range of 2-3%.