Dollar stays near 18-month high as inflation data in focus

Dollar maintained near its strongest level in 18 months during early Asian trade on Monday as worries over the Middle East conflict and upcoming US inflation data influenced investors. Oil prices fluctuated after Yemen's Iran-backed Houthis intensified attacks on Saudi Arabia, while two tankers were targeted over the weekend. Brent crude futures dropped by 1% to US$103.55 per barrel.

The dollar index, measuring the greenback's strength against six currencies, was slightly down at 102.14 but still near its 18-month high last week. Analysts at Commonwealth Bank of Australia anticipate the Houthis to continue their attacks on Saudi Arabian energy assets, supporting oil prices and the dollar. The US dollar weakened against the yen and Australian dollar, while the Australian and New Zealand dollars were nearly flat.

On Wednesday, traders will focus on the US consumer price index report, one of the last major economic releases before the Federal Reserve's October meeting on interest rates. The Fed raised rates last month for the first time since 2023 to curb inflation, and markets are closely watching economic data to determine if policymakers might raise rates again.

Currently, there is an 81% chance of the Fed maintaining rates this month, up from 51% a month earlier. Although the dollar's rally may pause in the near term, some pullback could occur, as sharp moves in bond markets have tightened global financial conditions, potentially prompting the Fed to adopt a more reassuring tone heading into the meeting.