Dollar Advances as Fed Minutes Show Broad Support for Tapering

The dollar advanced as minutes of the Federal Reserve’s last meeting showed officials were “broadly comfortable” with a plan to start reducing bond buying later this year if the economy improves.

The U.S. currency rose earlier as sales of previously owned U.S. homes climbed in July to the fastest pace since November 2009. Indonesia’s rupiah slumped to a four-year low and India’s rupee fell to a record as emerging-market assets declined on concern a paring of stimulus under the Fed’s quantitative-easing strategy would intensify outflows from the currencies. The Canadian dollar dropped to a six-week low as the tender of commodities-exporting nations dropped.

“It’s supportive of the tapering in the fall -- I don’t think it’s enough to knock it either way, from September being favored over December or the opposite,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “I don’t see anything here that’s a huge commitment to doing anything just yet.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, rallied 0.6 percent to 1,026.73 as of 5 p.m. New York time, the biggest gain on a closing-basis since Aug. 1.

The dollar rose 0.4 percent to 97.68 yen after gaining 0.7 percent, the biggest advance in a week. The U.S. currency gained 0.5 percent to $1.3355 per euro, halting a two-day decline. The euro was little changed at 130.46 yen.

Treasury 10-year note yields approached the highest level in two years as commodities fell for a third day.

Rupiah, Rupee

The rupiah slid for a sixth day versus the dollar even after Bank Indonesia Deputy Governor Perry Warjiyo said yesterday the central bank will remain in the currency and bond markets to stabilize the currency.

The rupiah declined 0.8 percent to 10,775 per dollar after slumping to 10,818, the weakest since April 2009. India’s rupee depreciated as much as 2.1 percent to 64.55 per dollar.

“To the extent that QE tapering implies reduced global liquidity, I think emerging markets will remain very sensitive to the Fed outlook -- it’s not something that’s going to reverse overnight,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “We remain cautious on the commodity currencies, especially in the short term. We think it’s still not a very supportive environment for those currencies.”

The Canadian dollar fell for a fourth day, dropping 0.8 percent to C$1.0474. The Australian dollar slid 1.1 percent to 89.69 U.S. cents, after declining to 89.66 cents, the weakest since Aug. 7. The New Zealand currency plunged 1.7 percent to 78.46 cents after touching 78.44, lowest since Aug. 6.

‘Not Yet

“Almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said ‘it might soon be time to slow somewhat the pace of purchases as outlined in that plan,’’ according to the record of the Federal Open Market Committee’s July 30-31 gathering released in Washington.

The Fed staff continued to work on tools for the exit from record stimulus, briefing FOMC participants on the possibility of “a fixed-rate, full-allotment overnight reverse repurchase agreement facility as an additional tool for managing money market interest rates.” The minutes said such a tool would allow the FOMC to offer an overnight, risk-free instrument to a “wide range of market participants.”

‘Market Expectations’

Fed Chairman Ben S. Bernanke’s and the FOMC will probably reduce the $85 billion in monthly asset purchases at the group’s Sept. 17-18 meeting, according to 65 percent of 48 economists in an Aug. 9-13 Bloomberg survey. The median estimate called for a cut to $75 billion each month.

The minutes show the Fed “did not wish to alter market expectations, taking a view that the market had essentially heard the message appropriately,” Alan Ruskin, the global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG in New York, wrote in a note. “Most other asset markets are taking their lead from Treasuries.”

Purchases of previously owned houses advanced 6.5 percent to a 5.39 million annual rate last month, figures from the National Association of Realtors showed in Washington. The median forecast of 76 economists surveyed by Bloomberg projected a 5.15 million pace.

Trading in over-the-counter foreign-exchange options totaled $22 billion, compared with $29 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the euro-dollar exchange rate amounted to $2.8 billion, the largest share of trades at 13 percent. Options on the Australian dollar-U.S. dollar rate totaled $2.4 billion, or 11 percent.

Euro-dollar options trading was 18 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Aussie-greenback options trading was 9 percent less than average.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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

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