Dollar Rises as GDP Gain Spurs Taper Speculation; Aussie Weakens

The dollar gained on expectations that the Federal Reserve will reiterate plans to slow the pace of monthly asset purchases this year at the conclusion of today’s policy meeting.

The greenback erased losses versus the euro and yen as reports showed companies boosted payrolls in July by the most this year and the U.S. economy grew more than projected in the second quarter. Fed Chairman Ben S. Bernanke said this month a reduction in the central bank’s bond-buying program would depend on the economy’s performance. The Australian dollar fell to its weakest level in almost three years on speculation the country’s central bank will cut interest rates.

“The better-than-expected nature of the data is considered taper-positive,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said by phone from Washington. “The dollar is getting a solid fundamental boost. Nothing in the data subtracts from expectations of a September taper.”

The Bloomberg U.S. Dollar Index rose 0.1 percent to 1,027.99 at 12:37 p.m. in New York, the third straight daily gain. The index is down 1.2 percent this month.

The U.S. currency declined 0.2 percent to $1.3289 per euro, after gaining as much as 0.4 percent. The greenback climbed 0.3 percent to 98.30 per yen after touching 98.59. Japan’s currency decreased 0.5 percent versus the euro to 130.63, after increasing 0.5 percent to 129.32, the strongest since July 12.

Rand, Forint

The Federal Open Market Committee will release its statement at 2 p.m. in Washington. The panel will probably wait until September to reduce the monthly purchases by $20 billion to a total of $65 billion, according to half of the 54 economists surveyed by Bloomberg News from July 18-22.

South Africa’s rand declined versus all 16 of its most-traded peers even as the country’s trade gap narrowed for a second month in June. The deficit fell to 7.7 billion rand ($775 million) from 11 billion rand in May, the Pretoria-based South African Revenue Service said in an e-mailed statement today.

The currency weakened 1 percent to 9.8965 per dollar after touching 9.9490, the lowest since July 19. The rand has fallen 0.2 percent versus the dollar in July.

The Hungarian forint headed for its first monthly loss in four after the country’s central bank said it would continue cutting interest rates and as the economy minister met lenders to discuss plans to phase out foreign-currency mortgages.

The forint was little changed at 225.53 per dollar after falling to 227.24, the lowest since July 11. The forint weakened 0.2 percent to 299.80 per euro.

GDP Increase

The Fed’s asset purchases “are by no means on a preset course,” and could be reduced or expanded as economic conditions warrant, Bernanke told lawmakers on July 17.

U.S. gross domestic product, the value of all goods and services produced, rose at a 1.7 percent annualized rate, after a 1.1 percent gain the prior quarter, Commerce Department figures showed. The median forecast of 85 economists surveyed by Bloomberg called for a 1 percent advance.

Companies in the U.S. boosted payrolls in July by the most this year as employers grew more optimistic demand will pick up in the second half of the year. The 200,000 increase in employment was more than projected and followed a revised 198,000 gain in June that was higher than initially estimated, according to data today from the ADP Research Institute in Roseland, New Jersey. The median forecast of 40 economists surveyed by Bloomberg called for a July advance of 180,000.

Aussie Drops

The dollar has strengthened 4.8 percent this year, the second-most behind the euro’s 5.7 percent increase, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The Australian dollar led all decliners with an 11 percent drop, while the yen fell 8.8 percent, the second-most.

The Australian dollar declined to its weakest level in almost three years as speculation the Reserve Bank of Australia will cut borrowing costs next week curbed demand for the currency. Governor Glenn Stevens said yesterday the inflation outlook provided room for additional policy easing.

Stevens’s comments “really left the door open for more easing, and those dovish signs give us more confidence in our view that the RBA will cut rates once again,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney. “The Aussie will weaken from here,” said Chan, who sees the currency at 89 cents by year-end.

The Aussie declined 1.1 percent to 89.63 U.S. cents after dropping to 89.42 cents, the weakest level since September 2010.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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