This illustration shows 100 US dollar bills on an American flag.
Igor Golovniov | SOPA pictures | LightRakete | Getty Images
The dollar rose a few inches in troubled trade on Wednesday as nervousness about the global growth outlook heightened and traders waited for US jobs data for an indication of when to tighten US federal policy.
The Reserve Bank of New Zealand raised its official currency rate for the first time in seven years, but the well-heralded increase was expected and the New Zealand dollar barely moved.
The kiwi was last 0.3% weaker at $ 0.6931 and the greenback posted similar gains elsewhere.
The euro traded below $ 1.16 and last bought $ 1.1590, barely higher than the 14-month low of $ 1.1563 it hit last week. The yen fell to a weekly low of 111.64 per dollar and was within the range of the 18-month low of 112.08 it hit last Thursday.
The Australian dollar weakened 0.3% to $ 0.7267.
The greenback has gained support as investors prepare for the Federal Reserve to begin curbing bond purchases this year, laying the groundwork for an exit from the pandemic-era interest rates well before central banks in Europe and Japan.
“Interest rate differentials are having a greater impact on currencies than they have been in a long time,” said Kim Mundy, an analyst at the Commonwealth Bank of Australia in Sydney, as an era of suppressed super-low interest rates comes to an end.
“Now that the Fed is starting to rejuvenate and hold out the prospect of an exit, we believe we could see market prices rise for rate hikes that will help prop up the USD,” she added.
Fed fund futures markets are priced with interest rate hikes beginning around November 2022, but expect rates to rise at just over 1% through most of 2025, despite Fed members having rates of 1.75 for 2024 % forecast.
The U.S. non-farm payroll data due Friday is seen as critical to the tone and timing of the Fed, especially if the numbers hit or disappoint. Personal pay slips, a sometimes unreliable guide, are due at 1215 GMT.
A big miss of market expectations for around 428,000 new jobs in September could dampen expectations for the broader number on Friday, which is forecast at 473,000.
Dollar in charge
Elsewhere, commodity-linked currencies received support from oil prices, which rose to three-year highs. The Canadian dollar is near a one-month high and is about to test its 200-day moving average. The Canadian dollar hit a 19-month high against the euro overnight.
Sterling has recovered somewhat from last week’s sharp sell-off against the dollar, but lost momentum during the Asian session, stabilizing at $ 1.3616 and just below the euro’s three-week high on Tuesday.
In New Zealand, a 25 basis point rate hike and the central bank’s well-known restrictive tone did not prove to be an event for traders and did little to change the currency or expectations for further rate hikes in November and February.
“We are on our way to a number of rate hikes and the market is well-rated for that,” said Jason Wong, senior market strategist at BNZ in Wellington. For the kiwi, that means “the US dollar is in charge,” he said.
“This is really about the Fed, but what we’re seeing around the world in China and the energy crisis in Europe just adds it all to the mix and makes the markets nervous, which is helping the dollar.”