Dollar Drops Versus High-Yield Peers on China Data; Aussie Rises

Euro Coins and U.S. Bill
The U.S. currency was little changed at $1.3165 per euro as of 1:44 p.m. in Tokyo after touching $1.3139 yesterday, the strongest since July 22. Photographer: Chris Ratcliffe/Bloomberg

The dollar weakened against its higher-yielding counterparts after a report showed China’s services industry expanded last month, adding to signs the global economy is recovering.

The U.S. currency fell against the majority of its 16 most-traded counterparts after a Federal Reserve survey found “modest to moderate” economic growth in early July through late August. The Australian dollar climbed for a third day after the nation’s economic growth quickened, while the New Zealand dollar also advanced. The Bloomberg U.S. Dollar Index halted a five-day run of gains that took it to the highest level since July.

“We’re seeing broad-based dollar weakness,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “The Chinese data could be supportive of riskier currencies and lead to stronger commodity prices. The market could also be getting a bit of risk-on sentiment.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, fell 0.3 percent to 1,033.04 at 5 p.m. New York time, after reaching 1,038.61 yesterday, the most since July 16.

The U.S. currency dropped 0.3 percent to $1.3207 per euro after climbing yesterday to the highest level since July 22. The greenback gained 0.2 percent to 99.74 yen. Japan’s currency lost 0.5 percent to 131.73 per euro.

Aussie Strength

The Aussie gained versus all but one of its 31 most-traded counterparts on the Chinese services data and as a report showed the country’s gross domestic product unexpectedly accelerated last quarter. The currency appreciated 1.2 percent to 91.73 U.S. cents after rising to the strongest level since Aug. 19.

New Zealand’s dollar rose versus all of its major peers as services in China, its biggest trade partner, rose in August. The so-called kiwi climbed 1.4 percent to 79.06 U.S. cents after touching the highest since Aug. 21.

“The data coming out of China has been supportive of growth and sentiment,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, said in a telephone interview. “That’s something that’s going to be a positive for the Australian dollar and other high-yielders.”

The pound strengthened to a three-month high against the euro as a report showed U.K. services expanded at the fastest pace since 2006, boosted demand for the currency. Sterling increased 0.2 percent to 84.52 pence per euro after reaching the strongest since May 16. The British currency rose 0.4 percent to $1.5626.

Central Banks

The Bank of England and the European Central Bank will announce interest-rate decisions tomorrow. U.K. central bank Governor Mark Carney introduced forward guidance on the path of interest rates last month, saying the Monetary Policy Committee won’t consider raising its key rate until unemployment falls to 7 percent, while MPC member Martin Weale voted against it.

“There is some speculation that the strength of the recent data will see another member join Weale’s dissent,” currency strategists at Brown Brothers Harriman & Co. led by Marc Chandler in New York wrote in a research note.

The Canadian dollar gained for a second day versus its U.S. peer as Bank of Canada Governor Stephen Poloz kept his main interest rate unchanged and reiterated that current monetary policy remains appropriate. The currency appreciated 0.4 percent to C$1.0496 per dollar.

BOJ Decision

The yen decreased versus all 16 of its most-traded counterparts amid projections the Bank of Japan will keep its monetary policy on hold in a decision tomorrow, refraining from adding to the unprecedented easing unveiled in April, according to a Bloomberg News survey of 32 economists. The BOJ is holding a two-day meeting that begins today in Tokyo.

The euro weakened against most of its major peers after a gauge of services output in the euro area, based on a survey of purchasing managers, expanded less than initially estimated in August. Separate data showed the region’s economy grew 0.3 percent in the three months through June, in line with a forecast last month.

HSBC Holdings Plc’s and Markit Economics’s services gauge for China rose to 52.8 last month from July’s 51.3. An official report released Sept. 1 showed a manufacturing gauge climbed to a 16-month high in August, while data yesterday revealed the government’s services index at 53.9 in August, above the 50 level that indicates expansion.

Fed Policy

In the U.S., Fed policy makers are debating whether the economy is strong enough to allow them to pare monthly purchases of $85 billion in Treasuries and mortgage debt, which tend to debase the dollar.

“Consumer spending rose in most districts, reflecting, in part, strong demand for automobiles and housing-related goods,” the Fed said today in its Beige Book survey, which is based on anecdotal reports from its 12 regional banks. “Residential real estate activity increased moderately in most districts, and demand for nonresidential real estate gained overall.”

Labor Department figures due Sept. 6 will show payrolls rose by 180,000 in August while the jobless rate held at 7.4 percent, according to a Bloomberg survey.

“It’s still a broadly constructive dollar environment,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The payrolls report is first among equals as far as data is concerned, which is not surprising given the preoccupations with tapering.”

Officials will reduce the amount at their Sept. 17-18 meeting, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $26.9 billion, compared with $27 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 Australian dollar-U.S. dollar exchange rate totaled $6.6 billion, the largest share of trades at 25 percent. Options on the U.S. dollar-yen pair amounted to $3.6 billion, or about 13 percent.

Australian dollar-U.S. dollar options trading was 251 percent more than the average for the past five Wednesdays at a similar time in the day. U.S. dollar-yen options trading was 27 percent less than average.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE