U.S. Dollar rises from seven-week low, Aussie dollar rallies
LONDON (Aug 11) The dollar rebounded on Friday from a seven-week low against major currencies as investors believed the selloff was overdone and expected data next week will point to an improving U.S. economy. The U.S. currency had fallen every session since last Friday's disappointing jobs data quelled expectations the Federal Reserve will start reducing its bond purchases as early as September.
But some traders said the decline went too far considering the Fed remains likely to be the first among central banks to scale back stimulus. U.S. data next week are projected to show a rise in retail sales and consumer inflation, supporting expectations of a Fed move in coming months.
"Some of the data could come in a little bit better in terms of expectations," said Chris Tevere, currency strategist at Forex.com in New York.
U.S. retail sales for July will be released on Tuesday, with economists looking for an increase of 0.3 percent. Consumer prices, due on Thursday, will likely show an increase of 2.0 percent year-on-year, also for July. Housing and regional manufacturing data will also be released next week.
The dollar index .DXY, which measures the greenback versus a basket of six currencies, rose 0.2 percent to 81.124. It had hit a nadir of 80.868 on Thursday, its lowest since June 19.
The Australian dollar rose to its highest in more than a week against the greenback, bolstered by strong factory output data from China, though strategists warned the Aussie's rebound could be temporary.
China, the world's second-largest economy, said its factory output rose 9.7 percent in July, beating forecasts, while retail sales jumped 13.2 percent and inflation held steady.
The Australian currency rose 1.0 percent to $0.9194, extending its 1.2 percent gain in the previous trading day on stronger-than-expected trade data from China, Australia's biggest export market. The Aussie has recovered sharply from a three-year low of $0.8848 touched on August 5.
Boris Schlossberg, managing director of foreign exchange at BK Asset Management, said the Aussie dollar could climb toward the 0.9300 level although the currency remains vulnerable to diverging interest rate expectations.
The Reserve Bank of Australia cut its main cash rate to a record low of 2.5 percent this week. In contrast, Fed policymakers have hinted in recent weeks that the U.S. central bank could start to scale back its $85 billion monthly bond-buying in September but this will depend on further improvement in the job market.
Dallas Fed President Richard Fisher reiterated on Thursday that the Fed remained open to trimming its bond purchases from September if economic data keeps improving.
The dollar dropped this week as U.S. bond yields eased. U.S. 10-year Treasury yields remain below the highs over 2.70 percent seen before last week's U.S. payrolls data, and the spread between similarly dated German and Japanese bonds has narrowed in the past few days, prompting investors to trim long dollar positions.
The euro fell 0.3 percent to $1.3343 after hitting a seven-week high of $1.3400 on Thursday, according to Reuters data.
The dollar slipped 0.5 percent to 96.23 yen after hitting a seven-week low of 95.79 on Thursday.
In Japan, a weaker yen is seen likely for at least a year, and how much it eases in the near term will depend on how soon investors expect the Fed to start reducing its stimulus, a Reuters poll found.
The poll of over 55 currency strategists, conducted August 7-9, showed the dollar at 98.5 yen in one month, 102 yen in three months and 107 yen in a year, compared with expectations of 100, 102 and 107 yen, respectively, in last month's poll.
On the week, the euro rose 0.5 percent against the dollar, its fifth straight week of gains. The dollar fell 2.7 percent against the yen, the largest weekly loss since mid-June.
Speculators pared their bets in favor of the U.S. dollar for a third consecutive week, data from the Commodity Futures Trading Commission showed on Friday. The value of the dollar's net long position fell to $21.62 billion in the week ended August 6 from $24.45 billion the previous week.