Aussie remains under pressure as traders weigh floods Down Under
By William L. Watts, MarketWatch
LONDON (MarketWatch) — The dollar mostly gained ground Wednesday, finding further support on optimism over the U.S. economic outlook, while the Australian dollar continued to feel pressure from heavy flooding.
Currency strategists warned that the dollar’s recent gains could prove fragile, with investors showing little sign of strong conviction ahead of the Friday release of U.S. nonfarm payrolls figures and other labor-market data for December.
The dollar index (DXY 80.03, +0.59, +0.74%) , a measure of the U.S. currency against a basket of six rivals, rose to 79.580 from around 79.433 in North American activity late Tuesday.
Minutes of the Dec. 14 meeting of Federal Reserve policy makers released Tuesday showed increasing optimism over the pace of the U.S. recovery. See more on Federal Open Market Committee’s meeting.
Investors will look to the ADP estimate of December private-sector payroll activity at 8:15 a.m. Eastern for clues to Friday’s official data. Also Wednesday, the ISM non-manufacturing index is set for release at 10 a.m. Eastern, with economists surveyed by MarketWatch forecasting the index to rise to 55.6% from 55.0% in November.
The euro (EURUSD 1.3182, -0.0127, -0.9545%) slipped to $1.3270 from $1.3305.
Strategists said the euro was undermined somewhat by reports the Swiss National Bank has excluded Irish government bonds from being used as collateral for its repo operations. Dow Jones Newswires reported a spokesman for the central bank as saying only that “securities that fulfill stringent requirements with regard to credit rating and liquidity are accepted as collateral.”
Meanwhile, Portugal sold 500 million euros worth of six-month bills at an average yield of 3.686%.
Market yields stood at around 3.6% ahead of the auction, analysts said. The yield marked a sharp rise in borrowing costs from 2.045% at the last auction of six-month bills, according to BGC Partners.
Also Wednesday, the final reading of the euro-zone purchasing managers index for December showed overall activity in the private sector expanded at a steady pace, with the composite PMI unchanged at 55.5.
The Swedish krona continued to climb as investors prepared for further rate hikes by the nation’s central bank. The krona traded at 8.9406 per euro in recent action and had traded as high as 8.9152 per euro, its highest level since 2004, according to FactSet Research data.
In other dealings, the dollar rose slightly versus the Japanese currency (USDYEN 82.8600, +0.8000, +0.9756%) to change hands at 82.06 yen, up from ¥82 on Tuesday. The euro slipped to ¥108.88, down from ¥109.15.
The British pound (GBPUSD 1.5540, -0.0043, -0.2759%) stood at $1.5577, up 0.7% from Tuesday.
Meanwhile, Tuesday’s sharp selloff in commodities was accompanied by currencies that typically trade in line with investors’ appetite for risk appetite — particularly the Australian dollar — declining.
The selling in commodities “was sharp, but it is too early to judge it to be anything other than a correction,” said Jane Foley, senior currency strategist at Rabobank, in emailed comments.
Severe flooding centered in the Queensland region has triggered fears that production, employment and exports could be hindered and that further interest-rate hikes by the Reserve Bank of Australia could be delayed, causing the Aussie to fall 2.1% versus the U.S. dollar since New Year’s Day, she said.
But the potential impact on commodity production could make the floods a net positive for commodities indexes despite the negative impact on the Australian dollar, she said.
Until the impact of the flooding is clear, the Aussie could feel pressure against the Canadian dollar. Foley noted a test Wednesday morning of the 50-day moving average at C$1.0025 setting up a potential move toward C$0.9890.
The pair traded at C$1.0006 in recent action, a decline of 0.3% from Tuesday.
