Aussie remains under pressure as traders weigh floods Down Under
By William L. Watts, MarketWatch
LONDON (MarketWatch) — The dollar gained ground Wednesday, extending its advance on major rivals after data showed a strong jump in private hiring last month, fueling optimism over the U.S. economic outlook.
Currency strategists warned that the dollar’s recent gains could prove fragile, however, with investors showing little conviction before Friday’s release of U.S. nonfarm-payrolls figures and other labor-market data for December.
But an Automatic Data Processing Inc. estimate that private-sector payrolls rose by 297,000 in December set Wednesday’s trading tone. Economists surveyed by Dow Jones Newswires had forecast an increase of 100,000. See more on ADP private-sector hiring for December.
The dollar index (DXY 80.28, +0.83, +1.05%) , a measure of the U.S. unit against a basket of six currencies, rose to 79.841 from around 79.433 in North American activity late Tuesday.
The euro (EURUSD 1.3141, -0.0160, -1.2026%) extended a loss to trade at $1.3183, down from $1.3305. The dollar rose versus the Japanese currency (USDYEN 83.1600, +1.1600, +1.4146%) to change hands at 82.84 yen, up from ¥82 on Tuesday.
“The ADP private-sector employment report has clearly boosted hopes that Friday’s payrolls figure will be on the strong side,” said James Knightley, economist at ING Bank.
Strategists noted that the ADP data hasn’t offered a reliable guide to month-to-month swings in the official payrolls data, but the size of the latest increase makes the figure difficult to ignore.
Also Wednesday, the ISM nonmanufacturing 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.
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. According to a Dow Jones Newswires report, a central-bank spokesman said that only “securities that fulfill stringent requirements with regard to credit rating and liquidity are accepted as collateral.”
Meanwhile, Portugal sold €500 million worth of six-month bills at an average yield of 3.686%.
Market yields stood at about 3.6% before the auction, analysts said. The yield marked a sharp rise in borrowing costs from 2.045% at the previous 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 more rate hikes by the nation’s central bank. The krona traded at 8.126 per euro in recent action and had traded as high as 8.9080 per euro, its highest level since 2004, according to FactSet Research data.
The British pound (GBPUSD 1.5486, -0.0099, -0.6352%) stood at $1.5524, down 0.4% from Tuesday.
Meanwhile, Tuesday’s sharp selloff in commodities was accompanied by a decline in currencies that typically trade in line with investors’ appetite for risk, particularly the Australian dollar.
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.
The Australian dollar (AUDUSD 0.9967, -0.0083, -0.8259%) fell back through parity versus the U.S. unit to trade at 99.51 U.S. cents, down 0.9% from Tuesday.
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 more than 2% versus the U.S. dollar since New Year’s Day, Foley 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 99.46 Canadian cents in recent action, a decline of 0.9% from Tuesday.
