TOKYO/SYDNEY, Mar 14: The U.S. Dollar hovered near seven-month highs against a basket of currencies on Thursday after bullish U.S. Retail sales data fanned hopes the economy can cope with the tax hikes and spending cuts that kicked in this year.
The Australian dollar shot up to five-week highs after a startlingly strong local employment report prompted traders to abandon expectations of rate cuts in coming months in Australia.
The dollar index stood at 82.905, almost flat on the day, but near Wednesday’s seven-month high of 83.055 hit after U.S. Retail sales rose at their fastest clip in five months in February. The report is the latest in a string of data indicating the world’s biggest economy is well onto a recovery path.
While the improving economic picture is unlikely to compel the Federal Reserve to reduce its monetary policy support any time soon, it highlighted the resilience of the U.S. Economy to the so-called fiscal cliff comprising tax hikes in January and spending cuts from March.
‘It looks like the U.S. Economy is on course to grow about 2.5 percent in the first quarter of this year. Where’s the cliff?’ said Arihiro Nagata, foreign bond investment manager at Sumitomo Mitsui Bank in Tokyo.
In contrast, economic weakness in the euro zone and political uncertainty in Italy are weighing on the euro.
The common currency skidded to a three-month low of $1.2923 on Wednesday and last stood at $1.2950, slightly below late U.S. Levels, though bids from an Asian central bank gave it a temporary support.
It has shed nearly 6 percent from a peak of $1.3711 set early last month. Support is seen around $1.2906, a level representing the 76.4 percent retracement of its November-February rally.
The euro also slipped against the yen, dipping to 124.30 yen and putting more distance from a 34-month peak of 127.71 set last month.
The yen found a reprieve also against the dollar, which fell 0.2 percent to 95.97 yen as Japanese companies repatriated funds ahead of their financial year-end on March 31.
Still, expectations of aggressive policy easing from the Bank of Japan are expected to underpin the dollar/yen, with many traders looking to buy the greenback near 95 yen, for a retest of 3 1/2-year high of 96.71 yen hit on Tuesday.
The British pound, which had been pummeled by expectations of more quantitative easing from the Bank of England, gained 0.1 percent to $1.4940, extending its rebound from a 33-month low of $1.4832 hit on Tuesday.
‘When sterling got all the way to 1.5 it was already extremely cheap. The weakness in the UK economy has already been priced in, so unless we see extreme signs of further weakness I don’t think it can slump any further,’ said Minori Uchida, chief currency strategist at the Bank of Tokyo-Mitsubishi UFJ.
The biggest gainer of the day, however, was the Australian dollar, which jumped after surprisingly strong Australian job data quashed expectation of further rate cuts by the Reserve Bank of Australia.
The Aussie gained 0.7 percent to $1.0370, rising as high as $1.0383 at one point, its highest in more than five weeks.
In contrast, investors took aim at the kiwi dollar after the Reserve Bank of New Zealand pledged to keep its cash rate steady at a record low 2.5 percent this year and even flagged a possible cut should certain conditions be met.
The RBNZ also warned that worsening drought conditions throughout the country could have a marked negative impact on growth.
The kiwi slid to a 2-1/2 month low of $0.8162 and last stood at $0.8181, down 0.1 percent on the day.
‘The RBNZ has come across outwardly sounding more dovish than last time, explicitly raising two-way risks around its outlook,’ said Chris Tennent-Brown, FX economist at Commonwealth Bank.
The South Korean won tumbled almost 1 percent to five-month lows. The central bank held rates on Thursday but some traders took comments from the governor as signalling there will be rate cuts coordinated with proposed government stimulus measures.
In Europe, the Swiss National Bank is also expected to hold fire at its policy meeting, but will keep defending the lid it set on the franc at least through 2013 and probably well into 2014, a Reuters poll found.
The franc was little changed around 1.2340 Swiss francs per euro, well off the SNB’s ceiling of 1.20. (AGENCIES)
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