Dollar hits six-week low as focus turns to Powell

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SINGAPORE — The dollar nursed losses near

a six-week low on Tuesday and commodity-linked currencies

loitered around multi-year highs, as investors’ focus shifted to

how U.S. Federal Reserve chief Jerome Powell might respond to

resurgent inflation expectations.

Surging prices for materials from oil and copper to lumber

and milk powder have pushed currencies such as the Canadian,

Australian and New Zealand dollars to their highest in roughly

three years.

However the gains have come with a worldwide rise in

inflation expectations and a big sell-off in longer-dated bonds.

Traders expect Powell, who testifies before Congress at 1500

GMT, to provide some reassurance that the Fed will tolerate

higher inflation without rushing to raise rates. That might calm

bond markets and eventually weigh on the dollar, they said.

“I think he will talk up the downside,” said Commonwealth

Bank of Australia currency analyst Joe Capurso in Sydney.

“If anything, I think he will give markets a bit of a cold

shower and say: ‘Mr Market you’re getting a bit ahead of

yourself. There are plenty of risks…and the U.S. economy is

long, long way from full employment.’”

Asia trade was dampened by a public holiday in Tokyo, but

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renewed confidence that low U.S. interest rates will not rise

anytime soon could clear the way for further gains in

trade-exposed currencies at the dollar’s expense.

Positioning data shows investors overwhelmingly betting that

a U.S. dollar that has been dropping since last March will keep

falling as the world recovers from the COVID-19 pandemic, even

if short holdings have been trimmed slightly in recent weeks.

“The broad dollar retains a heavy tone, expect the dollar

index to continue testing the 90.00 support,” said OCBC Bank

strategist Terence Wu.

“Selling pressure remains strong for now. We turn slightly

more cautious, but if dollar-negative views are still to be

expressed, (we) prefer to do it through commodity currencies.”

The U.S. dollar index fell to 89.941 on Tuesday, its

lowest since mid-January. The Australian dollar briefly

hit its highest since early 2018, buying $0.7934, while the kiwi

held steady around $0.7320. The Canadian dollar

held just below Monday’s near three-year high.

The euro made a small gain to $1.2167 and is

poised to re-test resistance around $1.2220.

Sterling, which has rallied nearly 3% this year as

a speedy vaccine rollout has inspired confidence in the prospect

of a British economic rebound, held above $1.40 at $1.4072.

The Japanese yen, which has been the worst performing

major currency of 2021 because rising U.S. Treasury yields can

draw investment from Japan, steadied at 105.02 per dollar.

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Elsewhere bitcoin dropped as far as 6%, but has found

support above $50,000 after a wild overnight ride where it

traded in a $10,000 range and dropped as low as $47,400.

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Currency bid prices at 0419 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.2168 $1.2158 +0.08% +0.00% +1.2177 +1.2160

Dollar/Yen 105.0400 105.0700 -0.01% +0.00% +105.0650 +105.0550

Euro/Yen 127.82 127.72 +0.08% +0.00% +127.8200 +127.6700

Dollar/Swiss 0.8957 0.8962 -0.04% +0.00% +0.8960 +0.8950

Sterling/Dollar 1.4073 1.4064 +0.06% +0.00% +1.4082 +1.4064

Dollar/Canadian 1.2594 1.2619 -0.17% +0.00% +1.2617 +1.2586

Aussie/Dollar 0.7915 0.7916 -0.01% +0.00% +0.7934 +0.7909

NZ 0.7318 0.7329 -0.12% +0.00% +0.7333 +0.7313

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook

Editing by Shri Navaratnam and Jacqueline Wong)

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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