MW: Dollar drops as China data whets risk appetite
Canadian dollar remains in focus amid intervention fears
The U.S. dollar extended losses against most major rivals Wednesday, sinking as Chinese data, strong U.S. corporate earnings and remarks by the Federal Reserve's vice chairman downplaying inflation risks whetted investor appetite for risky assets, strategists said.
U.S. stock index futures extended gains after J.P. Morgan Chase (JPM 47.32, +1.66, +3.64%) outpaced expectations by reporting a $3.6 billion third-quarter profit. Read Indications.
Rising equities have spelled weakness for the U.S. dollar as investors abandon the former safe haven for riskier assets.
Data showed China's exports contracted at a slower pace in September, falling 15.2% from a year ago after a 23.4% year-on-year contraction in August.
China's trade surplus totaled $12.9 billion in September, a 56% decline from a year ago and smaller than median market expectations for a $15.8 billion surplus. See full story.
The smaller-than-expected export fall led to speculation that estimates for third-quarter Chinese growth may be revised higher, which helped lift Australian shares as well as the Australian dollar, said Jane Foley, research director at Forex.com
Rising Australian exports to China have allowed Australia to avoid recession and helped fuel a rise in Australian consumer confidence to a two-year high despite the recent rate hike by the nation's central bank, she said.
The dollar index (DXY 75.60, -0.38, -0.49%) , which tracks the greenback against a trade-weighted basket of six major currencies, was at 75.565, down from 75.941 in late North American trading Tuesday, where it hit a 14-month low. See full story.
The Australian dollar was up 0.8% versus the U.S. unit to 91.30 U.S. cents, setting another 14-month high versus its U.S. counterpart.
The dollar trimmed a loss versus the Japanese yen, however, to trade at 89.65 yen, little changed from Tuesday.
Fed Vice Chairman Donald Kohn, in remarks Tuesday, warned that the economy will likely see a moderate recovery rather than a rapid, V-shaped snapback. Sluggish growth, in turn, means the risks of a further fall in the underlying inflation rate outweigh the risk of a rise. See full story.
The remarks contributed to a softer tone for the greenback, undercutting speculation that built up last week that the Fed could be preparing the market for further rate hike, Foley said.
Attention on Wednesday will turn to the release of U.S. September retail sales at 8:30 a.m. Eastern, as well as ongoing corporate earnings data.
The euro traded at $1.4890 versus the dollar, up from $1.4851 late Tuesday. Earlier, the euro pressed above $1.49 for the first time in more than a year.
Meanwhile, the statistics agency Eurostat said output rose 0.9% for the month, leaving it down 15.4% compared to August 2008. Economists had forecast a stronger 1.1% monthly increase, while the annual figure was in line with expectations.
Upward revisions to data in previous months point "to a stronger picture than we had expected before today's release," said Marco Valli, chief Italian economist at UniCredit MIB. "Accordingly, risks to our 0.4% GDP forecast for [the third quarter] are to the upside."
Meanwhile, the U.S. unit continued to slide toward parity with the Canadian dollar, underlining expectations Canadian authorities may soon attempt to intervene to prevent its currency from strengthening further, analysts said.
The U.S. dollar fetched just 1.0267 Canadian dollars in recent action, down 0.6% from Tuesday.
"The [Bank of Canada] has until recently been successful in slowing Canadian dollar appreciation by warning of possible intervention, but markets have clearly stepped up their game," said Kenneth Broux, market economist at Lloyds TSB.
The British pound climbed to $1.5980 from $1.5916.
Data showed British employers shed jobs at a slower-than-expected pace in September. Combined with broader unemployment data for the June-to-August period, economists said deterioration in the labor market appears to have slowed, but warned that job losses could pick up steam again in coming months.
