Rebounding US Dollar set for first week of gains in four
London (April 12) The dollar was on track for its first weekly rise in a month on Friday as jobless claims data eased concern about the U.S. labour market and attention shifted back to the chances the Federal Reserve will raise interest rates this year.
Against a basket of currencies, the dollar rose almost half a percent to a three-week high in morning trade in Europe, bolstered by diverging bond yields in the U.S. and euro zone that should pull capital into the world's largest economy.
Analysts said that despite weeks of softer data, which culminated in a surprisingly poor jobs report last Friday, the dollar was back on track to resume its year-long rally.
"The latest data now suggests that the U.S. economy is rebounding after a very weak start to the year," said Lee Hardman, currency economist at BTM-UFJ.
"The general story is still that the U.S. looks well positioned to outperform ... There is still scope for the dollar to strengthen further."
The dollar index rose 0.4 percent to 99.318, its highest since March 19. Against the euro, it was up half a percent at $1.0607, its strongest since March 19. The euro has fallen more than 3 percent this week.
Federal Reserve policymakers hinted this week that the U.S. may raise rates sooner than many expect, while European central banks have introduced negative interest rates and are printing money. That has made the U.S. bond yields more attractive than their European equivalents, drawing more international investment and boosting the dollar.
The Australian dollar has risen against both the euro and the U.S. dollar this week, partly due to a Reserve Bank of Australia decision on Tuesday not to cut interest rates, which prompted a squeeze in short Aussie positions.
The Aussie last traded at $0.7680, down on the day but up about 0.8 percent on the week. Several attempts on Thursday to break above $0.7740 ended in failure, suggesting the market remains wary.
Debt markets imply almost a three-in-four chance that the RBA will cut interest rates next month and analysts appear to be getting more dovish by the week.
"We continue to expect a 25bp cut in May and are now adding two more cuts to our RBA profile taking cash to a new low of 1.5 percent by end 2016," said Su-Lin Ong, head of Australian and New Zealand FIC Strategy at RBC Capital Markets.
"Our rationale is threefold: further weakness in key commodity prices/terms of trade, a weaker capex outlook coupled with faltering business confidence, and a sticky currency."