Dollar Touches Highest in Six Weeks on U.S. Rebound

05:00 PM @ Tuesday - 29 July, 2014
The dollar touched the strongest in six weeks against major peers amid optimism the U.S. recovery is gathering pace. New Zealand’s currency fell on prospects of lower earnings for the nation’s dairy farmers.

The Bloomberg Dollar Spot Index rose toward the 38.2 percent Fibonacci retracement of its drop between January and May before Federal Reserve officials start a two-day meeting today. The greenback reached a three-week high versus the yen after 10-year Treasury yields rose yesterday for the third time in four trading sessions. New Zealand’s dollar slid to the weakest since June 10. The yuan climbed to a four-month high.

“The dollar is being bought back against its major peers,” said Tomohito Katagiri, an analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services. “The greenback could touch 102 yen today now that U.S. long-term yields seem to have found a bottom.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, was little changed at 1,014.60 as of 8:16 a.m. London time after rising to 1,014.76, the highest since June 18. The 38.2 percent retracement on its Fibonacci chart, used by some traders to signal points where buy or sell orders may be clustered, lies at 1,014.79.

The dollar added 0.1 percent to 102.00 yen after reaching 102.01 yen, the highest since July 7. The U.S. currency was little changed at $1.3433 per euro.

The yield on U.S. 10-year notes was little changed at 2.49 percent after rising two basis points, or 0.02 percentage point, yesterday. The Treasury sold $29 billion of two-year notes at 0.544 percent yesterday, the highest auction yield since May 2011.

U.S. Rebound

Analysts surveyed by Bloomberg News predict the Commerce Department will say tomorrow that U.S. gross domestic product climbed an annualized 3 percent last quarter, indicating the fastest pace of growth for the world’s biggest economy since the quarter ended September 2013 and a rebound from a 2.9 percent contraction in January to March of this year.

Economists in separate survey forecast Labor Department data due Aug. 1 will indicate employers boosted payrolls in July by more than 200,000 jobs for a sixth-straight month.

Interest-rate increases may come “sooner and be more rapid than currently envisioned” if the labor market continues to improve more quickly than anticipated, Fed Chair Janet Yellen told lawmakers this month.

Fed Bets

Fed funds futures data compiled by Bloomberg yesterday showed traders saw a 49 percent chance the U.S. central bank will raise its benchmark by June, up from 42 percent on July 1.

“It’ll be very important to hear what the Fed makes of the continued improvement in the labor market,” said Yujiro Goto, a currency strategist in London at Nomura Holdings Inc., Japan’s largest brokerage. “If the U.S. economic data comes in firm, the dollar will strengthen against its major peers, including the yen.”

New Zealand’s currency dropped 0.4 percent to 85.10 U.S. cents after falling to 85.07 cents, the lowest since June 10.

Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, reduced its forecast today for milk prices in the 2014/15 season.

Options traders foresee 46 basis points of interest rate rises in the next 12 months, according to a Credit Suisse Group AG index, up from 39 basis points yesterday, the least in a year.

Reserve Bank of New Zealand Governor Graeme Wheeler signaled on July 24 a “period of assessment” after the developed world’s first round of rate increases since 2011. The benchmark rate stands at 3.5 percent following four straight 25 basis point rises since March.

Parity Call

HSBC Holdings Plc predicts the currency will strengthen to parity with its Australian peer by year-end for the first time, from NZ$1.0995, as monetary policy diverges.

“People will be looking for opportunities to sell the currency pair once it becomes clear that the RBNZ’s rate hike story is very much intact,” Paul Mackel, HSBC’s Hong Kong-based head of Asian currency research, said yesterday.

Reserve Bank of Australia Governor Glenn Stevens reiterated last week that he could take borrowing costs lower if necessary, with the unemployment rate hovering near a decade high. The Aussie slipped 0.1 percent to 93.95 U.S. cents.

The Chinese currency gained for a sixth day on signs of rising demand for the nation’s assets. It added 0.1 percent to 6.1816 per dollar, China Foreign Exchange Trade System prices show, after touching 6.1800, the strongest level since March 25.
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