Top Currency Trader Says Too Soon to Buy Dollars Despite Data

Dollar Outlook: Is More Downside Ahead?
  • Stronger jobs data last week made little impact on Fed outlook
  • Yellen Fed focusing more on world growth than U.S.: Citigroup

Citigroup Inc., the world’s biggest currency trader, says it’s “too soon” to buy the U.S. dollar after it slumped to a nine-month low and economic data came in stronger than forecast.

A gauge of the dollar was little changed Monday after dropping 1.6 percent last week even after Labor Department data showed U.S. employers added more workers than projected in March and wages strengthened. Federal Reserve Chair Janet Yellen and fellow policy makers are changing how they decide on rates, putting more weight on global financial conditions, even as U.S. data improve, said Todd Elmer, a Singapore-based foreign-exchange strategist at Citigroup.

“The dollar is on a tenuous footing despite the fact that the data have been coming out stronger,” Elmer told Bloomberg News. “Until the market starts to seriously consider the prospect of a June hike from the Fed, the dollar weakness is going to be the trend.”

Traders pushed back expectations for the next Fed increase after Yellen in a March 29 speech cited slowing Chinese growth and the outlook for commodities prices as risks. It’s appropriate to “proceed cautiously” in raising rates, she said. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, fell on March 31 to the lowest level since end-June. A Citigroup surprise gauge for U.S. data hit a four-month high March 18.

“Certainly the divergence trade, where the U.S. economy is leading and the Fed is tightening, could come back later this year,” Elmer said. “But for the time being, we just aren’t getting validation from the Fed in line with the pick up that we’ve seen in data.”

Yields Sought

The dollar will likely weaken against the currencies of commodity producers and developing nations as investors seek high-yielding assets, Elmer said.

The greenback declined 4.9 percent versus the Australian dollar in the first quarter, its biggest drop since the final three months of 2011. Against its New Zealand counterpart, the U.S. currency weakened 1.1 percent, adding to a 6.3 percent drop in the fourth quarter. An index of emerging-market currencies advanced 4 percent in the three months ended March 31, its biggest quarterly gain since 2012.

Hedge funds and money managers cut net bullish positions on the dollar to the lowest level since 2014, according to data from the Commodity Futures Trading Commission. Bets that the dollar would rise outnumbered bearish positions by 66,441 contracts for the week ended March 29, down from 87,902 a week earlier.

“Until we see a shift and the market starts to price in risks for more Fed tightening, the dollar is going to be on the back foot,” Citigroup’s Elmer said.

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