Dollar stays soft ahead of Fed minutes as BoJ hike talk builds

The dollar stayed on the back foot into Wednesday as US Treasury yields eased and traders waited for the Federal Reserve's September meeting minutes. In Asia, fresh Bank of Japan commentary and firm Japanese wage data kept rate-hike talk alive, although the yen barely moved.

What moved and why

FXStreet reports that the US dollar traded erratically ahead of the minutes, due on October 7. The Australian dollar extended its rally to a third day, with AUD/USD at 0.6981 after a low of 0.6961.

The Mexican peso also gained. According to FXStreet, profit-taking on the dollar and lower Treasury yields revived the carry trade, with USD/MXN at 17.97, down 0.55% on Tuesday.

Gold benefited from the same backdrop. FXStreet says the metal rose to near $4,165 in early Asian trade as long-dated Treasury yields eased from Monday's multi-decade highs.

Geopolitics remains in the mix. FXStreet, citing Reuters, reports that US Vice President JD Vance said Iran must reduce its nuclear enrichment capacity to end the seven-month war. The investingLive Americas wrap notes crude rebounded late Tuesday as Hormuz tensions rose, while the S&P 500 and Nasdaq closed at records.

The majors

The table shows the ECB reference rates from the October 6 fixing, the latest in our data, against the October 5 fixing.

The peso posted the largest move. The euro's rebound still left EUR/USD 0.76% below its fixing five sessions earlier. Investing.com reports the dollar slipped as the euro rebounded after France's Le Pen unveiled budget proposals. For background on the bond spread behind the euro's swings, see this explainer on French-German yield spreads.

The Canadian dollar lagged. Investing.com says it weakened near an 18-month low despite a C$4.20 billion August trade surplus against C$1.55 billion expected, per investingLive.

Central banks and data in the news

Bank of Japan

FXStreet, citing Reuters, reports that new BoJ policymaker Ayano Sato supports raising rates in several stages. investingLive notes Japanese real wages rose for an eighth straight month, with regular wages holding near 4%. A separate investingLive report shows factory sentiment near a five-year high while services sentiment dropped six points.

The yen did not react much. FXStreet says Governor Ueda's Tuesday speech left USD/JPY inside Monday's range, with futures pricing about a 25% chance of a hike at the October 29-30 meeting. FXStreet also notes that 210.00 has capped GBP/JPY three times since September 24. Chart: USD/JPY.

Australia, India and the US

• RBA: Australian consumer sentiment fell 4.7% to 80.4 in October, with the September 29 RBA hike doing most of the damage, FXStreet reports.
• RBI: FXStreet expected a 25 bp hike to 5.5%, announced at 04:30 GMT Wednesday. The outcome is not in our data.
• US data: The August trade deficit widened to $105.6 billion against $102.0 billion expected, per investingLive. A $58 billion 3-year note sale cleared at 4.932%.

What to watch next

1. The Fed's September meeting minutes on October 7. Chart: DXY.
2. The 10-year and 30-year US Treasury auctions later this week, investingLive says.
3. ECB board member Piero Cipollone at a panel in the Philippines, per the investingLive calendar.
4. The UK budget, ahead of which Investing.com reports Morgan Stanley is betting against the pound.
5. The BoJ meeting on October 29-30.