Dollar Gains as Investors Pare Bearish Bets; Aussie, Kiwi Fall

The dollar rose as investors pared bets on a weaker greenback amid speculation the Federal Reserve will maintain monetary stimulus as it awaits a pick-up in economic growth.

The U.S. currency strengthened versus most of its major counterparts amid commentary from regional Fed presidents as investors are paying the biggest premium in four days for options to buy the dollar versus the euro. The Australian and New Zealand dollars weakened as Asian stocks declined, reducing demand for the region’s higher-yielding assets. The pound fell as a gauge of mortgage approvals rose less than forecast.

“The market is squaring up positions on the dollar after its decline starting last week,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview. “The Fed speakers today were pretty much a non-event. It’s going to come down to the data over the next few weeks.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, rose 0.2 percent to 1,014.14 at 5 p.m. New York time after climbing to the highest level since Sept. 18.

The U.S. currency strengthened 0.1 percent to $1.3474 per euro after rising 0.2 percent yesterday. The greenback fell 0.1 percent to 98.75 yen. The euro dropped 0.2 percent to 133.05 yen.

Market Results

The dollar fell 2 percent in the past month, the biggest decline after the yen, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen slid 2 percent and the euro fell 1.2 percent. This year, the greenback is up 2.8 percent, the euro has gained 5.2 percent and yen is down 11 percent.

The New Zealand dollar fell versus all but one of its 31 most-traded counterparts as declines in global stocks reduced investor appetite for higher-yielding assets. The MSCI Asia Pacific Index of shares fell 0.6 percent.

The kiwi tumbled 1.1 percent to 82.82 U.S. cents after decreasing 1.4 percent, the most since Aug. 21. Australia’s dollar dropped 0.4 percent to 93.91 U.S. cents.

“The equity markets opened on a softer foot and we’re seeing a bit of weakness in the Aussie dollar as some risk comes off the table,” said Jim Vrondas, chief currency and payment strategist at OzForex Ltd. in Sydney. “I don’t expect it to have a long-lasting effect.”

Hungary’s forint depreciated against the majority of its major peers as the country’s central bank cut its benchmark interest rate to a record low after inflation slowed. The currency slid 0.4 percent to 222.19 per dollar and declined 0.3 percent to 299.34 per euro.

Quarterly Decline

The dollar has weakened 3.6 percent this quarter versus the euro, headed for the biggest decline since the three months through March 2011. The greenback has dropped 0.4 percent against the yen in the same period.

Cleveland Fed President Sandra Pianalto and the Kansas City Fed’s Esther George spoke earlier after the central bank unexpectedly left its bond-purchases program unchanged when officials met on Sept. 17-18.

Fed Bank of New York President William C. Dudley said yesterday the economy “still needs the support of a very accommodative monetary policy,” and told CNBC today tapering would require improvement in the job market and economy. His Atlanta counterpart Dennis Lockhart said yesterday policy should focus on creating a more dynamic economy after a recent cooling in growth.

“Some people are taking short dollar positions off the table,” Douglas Borthwick, head of foreign exchange at Chapdelaine & Co. in New York, said in a telephone interview. “Yesterday, you saw a number of comments that made it seem that tapering was right on the cusp. Esther George will likely come out and move the taper issue even closer.” A short position is a bet that an asset will decline in value.

Fed View

Twenty-four of 41 economists surveyed by Bloomberg News on Sept. 18-19 said the Fed will take its first step in slowing its bond purchases in December.

The greenback will continue gaining versus the euro until it reaches key resistance at $1.3450 to $1.3454, at which point it will resume a longer-term decline, David Sneddon, global head of technical analysis in London at Credit Suisse Group AG, wrote in a client note.

The pound weakened for the third time in four days against the dollar after the British Bankers Association said loans approved for house purchases rose to 38,228 in August from a revised 37,428 the previous month. Economists surveyed by Bloomberg forecast 38,950.

Data Dependence

“The pound has had a long rally recently on the back of strong U.K. data and a generally weaker dollar,” said Bernd Berg, a currency strategist at Credit Suisse Group AG in Zurich. “There is a lot of positive economic news priced into the pound. Any slight disappointment in economic data in the weeks ahead will lead to a reversal of the recent strength and a pull back towards $1.57.”

Sterling fell 0.2 percent to $1.6004 after climbing to $1.6163 on Sept. 18, the strongest since Jan. 11.

Trading in over-the-counter foreign-exchange options totaled $24.9 billion, from $14.3 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 dollar-yuan exchange rate amounted to $3.7 billion, the largest share of trades at 15 percent. Options on the dollar-yen rate totaled $3.5 billion.

Dollar-yuan options trading was 54 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 21 percent less than average.

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

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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