Soaring commodity prices have sent the cost of raw materials from copper to iron ore and lumber to record highs, raising concerns that inflation may not be as transitory as some believe with U.S. breakeven rates scaling multi-year peaks.
The Australian dollar steadied at $0.7827, hovering just below a two-month high hit on Monday. The Canadian currency stabilised near a near four-year high, while the New Zealand dollar perched comfortably at February highs.
But markets were broadly trading in narrow ranges by looming U.S. consumer price figures due on Wednesday, as traders worried that a big number might prompt the Fed to wind back monetary policy support sooner than expected.
“The dollar might find some short-term support tomorrow, if the consumer prices surprise notably on the upside,” Commerzbank strategists said in a daily note.
Appearances later on Tuesday from U.S. Federal Reserve members John Williams, at 1430 GMT, and Lael Brainard, at 1600 GMT, will be parsed for clues as to central bank thinking.
Against a basket of its major rivals, the dollar steadied at 90.283, just above a Feb. 25 low of 90.03 hit in the previous session.
“The big question is whether the Fed can be comfortable staying dovish,” said Bank of Singapore currency analyst Moh Siong Sim. “If inflation rises more than the Fed expects... what happens to the Fed then?”
Markets expect U.S. year-on-year inflation to hit 3.6% in April, juiced by the base effect of a pandemic year contraction.
Investors seem increasingly at odds with policymakers over whether that sort of price growth will persist, and drove up U.S. five-year breakevens - a measure of inflation expectations - to a decade-high 2.717% on Monday. Reporting by Saikat Chatterjee; Additional reporting by Stanley White in TOKYO and Tom Westbrook in SINGAPORE; Editing by Subhranshu Sahu