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Dollar Hits Lowest in 3 Weeks as Sales Forecast Damps Taper Bets

The dollar slid to a three-week low against the yen before data tomorrow that economists said will show U.S. retail-sales growth slowed, strengthening the case against faster tapering by the Federal Reserve.

The Bloomberg Dollar Spot Index dropped for a third day after a report last week showed the U.S. added fewer workers in December than the most pessimistic projection in a Bloomberg News survey. Australia’s dollar climbed to a one-month high after home-loan growth exceeded analysts’ forecasts. The rand fell the most against the dollar and yen among 16 major currencies before a report tomorrow analysts said will show South African mining-production slowed.

“There are some occasional weak data-points, but the growth in the U.S. economy is far from being in doubt,” said Andrew Wilkinson, the Greenwich, Connecticut-based chief market analyst at Interactive Brokers LLC. “In the longer run, we’ll see dollar-yen trade at 110. There’s nothing changing in the overall picture, just that too many people have gotten on one side of the boat.”

The dollar slid 1.1 percent to 103 yen at 5 p.m. New York time after falling to 102.86, the weakest since Dec. 18. It was little changed at $1.3671 per euro, having depreciated 0.6 percent last week. Japan’s currency climbed 1.1 percent to 140.81 per euro after touching 140.50, the strongest level since Dec. 6.

Aussie Rallies

Australia’s dollar strengthened against most of its 16 major peers as home-loan approvals climbed 1.1 percent in November from the previous month, faster than the median forecast for a 1 percent increase. Employers added 10,000 jobs last month after boosting positions by 21,000 in November, the nation’s statistics bureau will say on Jan. 16, according to a Bloomberg survey.

Australia’s dollar rose 0.7 percent to 90.54 U.S. cents after advancing to 90.86 cents, the highest since Dec. 11.

Mining output in South Africa increased 7.1 percent in the year through November, compared with 22 percent the previous month, a report will show tomorrow, the median estimate of economists in a Bloomberg survey showed. Mining commodities account for more than 50 percent of the country’s exports, according to government data.

The rand slipped 1.7 percent to 10.8249 per dollar and was 1.7 percent weaker at 14.7989 per euro.

Yuan, Rupiah

China’s yuan rose to a 20-year high after the central bank raised the currency’s daily reference rate to the highest since a peg to the greenback was scrapped in July 2005. Indonesia’s rupiah rose the most in six weeks.

The yuan gained 0.1 percent to 6.0434 per dollar at the close in Shanghai, according to China Foreign Exchange Trade System. It reached 6.0424, the strongest since China unified the official and market exchange rates at the end of 1993.

The rupiah gained 0.9 percent, the most since Dec. 2, to 12,050 per dollar, prices from local banks show.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, fell 0.3 percent to 1,021.18 after decreasing 0.4 percent on Jan. 10, the steepest drop since Oct. 22.

Fed policy makers said Dec. 18 they will cut monthly bond buying to $75 billion from $85 billion, citing improvements in the labor market. They next meet on Jan. 28-29.

Market ‘Doubts’

“I’m concerned the retail sales will be soft, so if anything, the risk is dollar-yen will still go lower in the near end before it goes higher,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview. “I still think the Fed is going to taper again in January, but the price actions suggest the market has doubts. Dollar-yen has caught up in the story.”

Atlanta Fed President Dennis Lockhart said today the December tapering move acknowledged progress in U.S. employment and reflected improving confidence in outlook.

“I would support similar tapering steps over the course of this year,” Lockhart said in text of speech in Atlanta.

Charles Plosser from the Philadelphia Fed and Richard Fisher from Dallas speak tomorrow. Plosser and Fisher are voting members of the Federal Open Market Committee this year.

Fed policy makers will trim asset purchases in $10 billion increments over the next six meetings before ending them by December at the latest, according to the median forecasts of economists surveyed by Bloomberg on Jan. 10.

Payrolls Lag

A 74,000 increase in December payrolls lagged behind the 197,000 advance estimated by economists and compared with the most pessimistic forecast for 100,000, Labor Department figures showed on Jan. 10. The unemployment rate declined to 6.7 percent, the lowest since October 2008, as more people left the workforce.

Retail sales in the world’s largest economy climbed 0.1 percent last month, slowing from a 0.7 percent increase in November, according to the median forecast of economists in a Bloomberg News survey. A report on Jan. 16 will show inflation stayed below the Fed’s 2 percent target last month, another Bloomberg survey showed.

“This is simply a dip in the longer-term strong U.S. growth trend, rather than a meaningful shift in economic developments,” Morgan Stanley analysts led by Hans Redeker in London wrote in a note to clients. The dollar “should sell off over the week, but in most cases we would buy in dips,” they wrote.

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