Dollar gains on Fed rate-hike, ECB stimulus bets

Stripping out sales of autos and gasoline, there was no growth in retail sales last month. Even though bets on an early interest-rate increase have been pushed back, the argument goes, the Federal Reserve will still tighten monetary policy before other major central banks.

The New Zealand dollar advanced to 93.50 Australian cents from 92.78 cents ahead of Friday’s Reserve Bank of Australia’s six monthly financial stability review. Similar-maturity French, Italian and Spanish bonds were supported by the view the European Central Bank would expand or extend its quantitative-easing program in an attempt to boost inflation and bolster economic growth.

The New Zealand dollar was the best-performing major currency this week, up 2.2 per cent, and on track for its first three-week winning streak since February.

The dollar climbed to an early high of USD1.1335 against the Euro Friday, but has since retreated to around USD1.1380. The greenback declined 0.2 percent to $1.1493 per euro after depreciating to $1.1494, the weakest since August. 26. It hit a seven-week low against the euro on Thursday at $US1.13630. It was little changed at 119 yen, after falling to an nearly two-month low Thursday. There has been speculation that jitters over the weaker job creation data has made consumers more cautious about spending, but this is unlikely since human nature dictates that people assume themselves to be immune from job losses and besides, we are experiencing a slowdown of job creation rather than an increase in unemployment. Most are now coming to the conclusion that the Federal Reserve will need to hold off on an interest rate hike until next year. “The CPI print could steady the pessimistic stance, but the question remains as to whether the Fed can achieve levels of inflation close to its 2 per cent target”, said Alex Lydall, senior trader at Foenix Partners, a firm which offers currency hedging solutions to United Kingdom companies. “Still our (economic) picture here is brighter than the rest of the world”.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 2.1 per cent. Japan’s Nikkei gained 1.15 per cent, as the second successive fall in manufacturers’ sentiment in Japan kept pressure on policymakers to do more.

The value of the dollar’s net long position dropped to $US18.97 billion in the week ended October 13, from $US20.89 billion the week before. The Japanese currency has risen about 1.6 per cent this week.

Interest rate futures are now banking on the Fed raising rates in March next year, with a 52 per cent chance, according to the CME Group FedWatch.

The Bloomberg Dollar Spot Index climbed 0.3 percent as of 6:37 a.m. New York time, bringing its advance over the past two days to 0.5 percent.