Dollar rests on yield support, talk of upbeat payrolls

The dollar has edged higher since Fed Chair Jerome Powell played down the recent slowing in inflation and saw no reason to cut interest rates. — AFP pic
The dollar has edged higher since Fed Chair Jerome Powell played down the recent slowing in inflation and saw no reason to cut interest rates. — AFP pic

SYDNEY, May 3 — The dollar was trying to end the week with a firmer tone today as markets scaled back bets on a US rate cut and some speculated that looming jobs data could surprise on the high side.

 

Adding to the event risk, there are no less than eight Federal Reserve policymakers speaking today. including Fed New York President John Williams and Vice Chairman Richard Clarida.

The dollar has edged higher since Fed Chair Jerome Powell played down the recent slowing in inflation and saw no reason to cut interest rates.

That helped the dollar index recoup losses from earlier in the week to stand at 97.844 against a basket of currencies, up from a trough of 97.149.

It has barely changed this week, no big surprise given the market has lacked liquidity with Japan and China on extended holidays.

Against the yen, the dollar was idling at 111.48 having spent the entire week in a snug 111.03-111.89 band.

The euro was flat at US$1.1172 (RM4.63), having eased back from a US$1.1219 top overnight, though it was still a shade firmer on the week. Eurozone manufacturing surveys released yesterday showed further contraction in April, but at least got no worse.

“The flow of economic data fits with most central banks taking a cautious line, fearful of downside global growth risks,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.

“The USD will be helped by having a pre-existing yield advantage, with a central bank that is trying hard to send a steady policy message.”

Interest rate futures imply around a 49 per cent chance the Fed would cut rates by December, down from 61 per cent late on Wednesday. Yields on two-year Treasuries were up 6 basis points on the week so far.

The pricing on rates may change again depending on what the US April jobs report reveals. Forecasts are for payrolls to rise a solid 185,000 with unemployment at 3.8 per cent.

Analysts at NAB reckon there is a chance of an even stronger number, given the run of leading indicators and the fact that March was held back by poor weather that cleared in April.

They are tipping a rise in jobs of 260,000, which would certainly put a spring in the dollar’s step.

The risk for bulls would be a soft wages print, given the Fed’s focus on inflation right now. The median forecast is for average earnings growth of 3.3 per cent and anything less could take the shine off the dollar.

Among the few movers for the week were the Australian and New Zealand dollars, which fell as speculators wagered both countries could see interest cuts next week.

The Reserve Bank of Australia (RBA) holds a policy meeting on May 7 and the Reserve Bank of New Zealand a day after, and there is a real risk they might ease following recent disappointingly low inflation reports.

Futures imply around a 32 per cent chance of a quarter point cut from the RBA, while swaps show a 53 per cent probability of a move from the RBNZ.

The Aussie was down 0.5 per cent for the week at US$0.6996 , with the kiwi also off 0.5 per cent at US$0.6622. — Reuters

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