Dollar Gains Versus Higher-Yielding Currencies as Kiwi Tumbles

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The dollar climbed versus higher-yielding currencies as signs of contraction in Chinese manufacturing output renewed concerns about the strength of the world’s second-largest economy.

The U.S. currency strengthened against peers from emerging-market and commodity-producing nations as prices for crude oil fell in New York. A measure of China’s output dropped to a 12-month low in April, adding to investor apprehension over a slowdown after first-quarter data showed the weakest economic expansion since 2009. The greenback’s biggest gains on Thursday came against the kiwi after Reserve Bank of New Zealand Assistant Governor John McDermott said monetary policy will remain stimulatory.

“The China data brought back fears about the Chinese economy which has helped the dollar,” said Alvin T. Tan, a foreign-exchange strategist at Societe Generale SA in London. The bounce in commodity prices that supported emerging-market currencies has petered out, he said. “The oil rally has been hitting some topside resistance and so the dollar has been able to gain back some ground,” Tan said.

The dollar appreciated 0.5 percent to 77.18 cents per Aussie dollar at 7:26 a.m. in New York. The U.S. currency rose 0.1 percent to 120.07 yen, and gained 0.8 percent against the India’s rupee and 0.4 percent versus Indonesia’s rupiah. The dollar weakened 0.1 percent to $1.0737 per euro.

The preliminary Purchasing Managers’ Index of Chinese manufacturing from HSBC Holdings Plc and Markit Economics was at 49.2, missing the median estimate of 49.6 in a Bloomberg survey, which was also March’s final reading. The 50-point mark separates contraction from expansion.

Crude Price

West Texas Intermediate crude for June delivery fell 0.3 percent to $55.97 a barrel, extending the three-day decline to 3.3 percent. Brent oil was 0.1 percent lower at $62.70 a barrel.

The kiwi sank 1.5 percent to 75.51 U.S. cents and weakened at least 1 percent against all 16 of its major peers.

RBNZ’s McDermott said in a speech Thursday that the central bank will ensure that monetary policy is stimulatory to support growth. Swaps traders see 54 percent odds the New Zealand central bank will reduce borrowing costs this year, data compiled by Bloomberg show.

The outlook for inflation is subdued and “suggests that monetary policy should remain stimulatory for a prolonged period,” he said. “Evidence of weakening demand and domestic inflationary pressures would prompt us to consider lowering interest rates.”

While McDermott’s comments may not constitute a “marquee moment for the RBNZ,” they signal a shift in the central bank’s stance toward an easing bias, Michael Turner, a strategist at Royal Bank of Canada in Sydney, wrote in a note to clients. “We remain comfortable expecting cuts over the course of this year.”

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