Dollar steady; Aussie, kiwi lower on profit taking

Reuters SINGAPORE | Updated on January 14, 2019 Published on January 14, 2019

The dollar rose against most of its peers on Monday, although heightened investor expectations that the Federal Reserve will not raise rates this year are most likely to cap the greenback's gains.

The Australian dollar and New Zealand dollar edged lower versus the dollar in early Asian trade, falling 0.2 per cent and 0.1 per cent, respectively. Both currencies had gained around 1.5 per cent versus the dollar last week as risk sentiment improved on hopes for both a US-China trade deal and more aggressive stimulus from Chinese policymakers to support its ailing economy.

“Given the support we had seen in commodity currencies, it is reasonable to see profit booking. I expect the uptrend to resume soon,” said Michael McCarthy, chief markets strategist at CMC Markets.

The dollar fell 1.5 per cent versus the offshore yuan last week, its steepest weekly decline since January 2017 as investors' fears of a sharp slowdown in the world's second largest economy somewhat abated. “I expect the yuan to appreciate further. Markets had overestimated the degree of slowdown in China,” added McCarthy.

The dollar index was at 95.68, marginally higher in early Asian trade. After a stellar 2018, in which the greenback gained 4.3 per cent due to the US central bank hiking rates four times, investors now expect the Fed to halt its monetary tightening policy.

Market participants think that worries of slowing domestic and global growth as well as tame US inflation will make Fed policymakers hesitant to raise borrowing costs in the world's largest economy. Fed Chairman Jerome Powell reiterated last week that the US central bank has the ability to be patient on monetary policy given that inflation remains stable.

Data on Friday showed that US consumer prices in December fell for the first time in nine months in December.

The euro fell around 0.1 per cent to $1.1460. The single currency lost 0.3 per cent on Friday after data showed that Italy, the euro zone's third-largest economy, was at risk of recession. The yen was at 108.40, marginally stronger versus the greenback.

The British pound gained 0.15 per cent to $1.2861 at the start of what is expected to be a highly volatile week. Prime Minister Theresa May must win a vote in parliament on Tuesday to get her Brexit deal approved or risk a chaotic exit for Britain from the European Union. The numbers are not in May's favour and her chances of winning the vote look extremely slim.

“The market is widely expecting the vote not to pass through parliament. Upside in sterling looks capped at $1.2940,” added CMC's McCarthy.

Published on January 14, 2019
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