Resurgent commodity prices push dollar down
Fed rate anxiety is hurting the US dollar, shifting investor confidence into commodities, bolstering the currencies of commodity exporters Australia and New Zealand
The dollar fell to a seven-week low as a rebound in commodity prices spurred gains by the currencies of resource-exporting nations, including Australia and New Zealand.
The Australian dollar extended its longest streak of gains since March 2009 and New Zealand’s currency touched its strongest since July. Currencies of commodity exporters are rallying at the expense of the US dollar amid speculation that the Federal Reserve may refrain from raising interest rates until 2016, even as officials say they’re still ready to tighten policy this year.
“We’re more positive about commodity currencies in the medium term as they’ve weakened significantly since May and a lot of bad news is already in the price," said Roberto Mialich, senior Group-of-10 currency strategist at UniCredit SpA in Milan, which told clients on 8 October to buy Canadian dollars against the US currency. “Another key factor that supported them is that the broad-based dollar momentum is no longer there, as the market cut back on fed funds rate expectations."
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers including its Australian counterpart, slumped 0.2% as of 10:19 a.m. in New York. It reached the lowest level on a closing basis since 24 August.
Australia’s dollar rose for a ninth day, climbing 0.3% to 73.55 US cents, after advancing the most since December 2011 last week. New Zealand’s kiwi, named for the image of the flightless bird on its NZ$1 coin, added 0.6% to 67.27 US cents. It rose last week by the most in almost four years .
China Stimulus
Both currencies fell to more than six-year lows in the third-quarter amid a rout in commodities that saw Bloomberg’s measure of prices tumble the most since the global financial crisis. That index is now near a two-month high.
Speculation is also mounting that China will again intervene to bolster its slowing economy with targeted stimulus. The People’s Bank of China raised its yuan fixing to the strongest since 12 August, the day after a surprise yuan devaluation that triggered the currency’s steepest decline in two decades.
Futures show a 41% likelihood that the Fed will raise rates by December, down from 59% a month ago. The calculations are based on the assumption that the effective fed funds rate will average 0.375% after liftoff, versus the current target range of zero to 0.25%.
Atlanta Fed President Dennis Lockhart reiterated on Monday that he backs a rate increase in October or December. Fed Vice Chairman Stanley Fischer, meanwhile, said on Sunday that the economy may be strong enough to merit a rate increase in 2015.
Crude oil fluctuated near $50 per barrel
“Oil’s really been the thing thats driving everything right now," said Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG in New York. The greenback “can maybe chop around and go a little bit lower, but I wouldn’t be out there and buying Aussie at the moment. Sure, it can go higher, but to me, it’s more about if you get a pop higher then looking to sell." Bloomberg
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