Dollar Falls Versus Higher-Yield Currencies as Fed Bets Vanish

  • Greenback heads for biggest 3-week drop versus kiwi since 2013
  • Traders trim bets to 27% that Fed will act by December meeting

The dollar fell against higher-yielding currencies, headed for its steepest three-week decline in two years against its New Zealand counterpart, as signs U.S. growth is slowing spurred traders to scaled back bets for the Federal Reserve to raise interest rates. 

A gauge of the greenback dropped to a two-month low as worse-than-expected U.S. economic reports this week, including retail sales and producer prices, highlighted the risks to global growth that kept policy makers from raising rates last month. The dollar declined for a third day against the euro.

“Sluggish data all at once pushed back expectations for a Fed rate hike,” said Takuya Kanda, a senior researcher at Gaitame.com Research Institute Ltd. in Tokyo. “The dollar selling we’ve been seeing is linked to fading expectations of a Fed rate increase and not to a creation of fresh dollar short positions,” he said, referring to bets the U.S. currency will weaken.

The greenback dropped 0.7 percent to 68.36 cents per New Zealand dollar as of 7:27 a.m. in London and weakened 0.3 percent to 73.23 cents to the Australian currency. The U.S. dollar has slumped 6.6 percent versus the kiwi since Sept. 25, set for its biggest three-week drop since September 2013.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.1 percent to 1,182.44 after sliding to 1,182.42, the lowest level since Aug. 24. The greenback declined 0.2 percent to $1.1493 per euro after depreciating to $1.1494, the weakest since Aug. 26.

A U.S. retail sales report Wednesday showed shoppers spent less in September than economists forecast, while wholesale prices fell the most since January. Chinese data on Wednesday showed consumer prices rose 1.6 percent in September from a year ago, less than the 1.8 percent increase forecast in a Bloomberg survey.

Kiwi Bets

Hedge funds and other large speculators reduced their net wagers that the kiwi will decline to 971 in the week through Oct. 6, from a record of 19,654 in the period through July 14, according to the Commodity Futures Trading Commission in Washington.

“The kiwi is outperforming on improving domestic fundamentals but the majority of the move is driven by U.S. dollar factors and reduction in fears around quantitative tightening,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “Markets are removing risk discounts from currencies like New Zealand dollar.”

Futures contracts indicate a 27 percent probability the Fed will increase borrowing costs by December, down from 41 percent odds at the end of last month, according to data compiled by Bloomberg. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff.

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