Dollar Reaches Month High on Fed Tapering Bets; Aussie Weakens

The dollar climbed to the highest in almost a month against the yen as signs of improvement in the U.S. economy buoyed speculation the Federal Reserve will start scaling back asset purchases this year.

The greenback approached the strongest level in almost a month versus the euro before a report economists said will show factory orders gained by the most in three months. Data this week is forecast to indicate a drop in the unemployment rate as companies in the world’s biggest economy continued to add jobs. Australia’s dollar weakened as the Reserve Bank flagged declines in the currency after keeping borrowing costs unchanged at a meeting today.

“The dollar is likely to stay underpinned if data continues to improve,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “We see scope for the Fed to be able to start tapering the policy accommodation this year before Fed Chairman Bernanke departs early next year.”

The dollar was little changed at 99.67 yen as of 9:07 a.m. in London after reaching 99.91 yen, the most since June 5. The U.S. currency was at $1.3058 per euro. It touched $1.2985 on June 26, the strongest level since June 3. Europe’s shared currency was little changed at 130.17 yen after climbing to 130.64, the highest since June 11. The Australian dollar dropped 0.5 percent to 91.92 U.S. cents.

The U.S. Commerce Department will say orders placed with factories climbed 2 percent in May following a 1 percent gain in the previous month, according to the median estimate of economists surveyed by Bloomberg News. If confirmed, that would be the biggest advance since February.

Job Gains

Companies in the U.S. added 160,000 workers last month after increasing positions by 135,000 in May, analysts in a separate poll predicted before a report tomorrow by the Roseland, New Jersey-based ADP Research Institute.

Labor Department figures due July 5 will show the nation added 165,000 jobs in June after boosting payrolls by 175,000 in the prior period, according to economist forecasts in another Bloomberg survey. The jobless rate is predicted to have declined to 7.5 percent from 7.6 percent in May.

New York Fed President William C. Dudley is scheduled to speak on the economy later today in Stamford, Connecticut.

“We have made significant progress in increasing the stability of the world’s financial system, but the task of reforming the system remains incomplete and uneven,” Dudley wrote in a letter posted yesterday on the New York Fed’s website as part of its annual report. “Much more must be done to ensure that the financial system is robust enough to absorb shocks and still provide the credit needed for economic growth and job creation.”

European Output

London-based Markit Economics will confirm tomorrow that a gauge of euro-area manufacturing and services output climbed in June to the highest in 15 months, according to economists surveyed by Bloomberg. European Central Bank officials meeting the following day will keep the 17-nation region’s borrowing costs at a record-low 0.5 percent, analyst predictions in a separate Bloomberg survey showed.

“The most recent data supports the notion that the ECB will refrain from additional policy action as soon as this week,” Manuel Oliveri, a London-based foreign-exchange strategist at Credit Agricole Corporate & Investment Bank, wrote in an e-mailed note to clients. “Still, there is little scope for the ECB to sound more hawkish.”

The euro should be sold when it rallies against its U.S. counterpart, Oliveri wrote.

The dollar has climbed 6.2 percent this year, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro was the second-biggest gainer, rising 5 percent.

The yen dropped 9 percent in the same period, the largest decline on the gauge. The Aussie dollar was the second-worst performer, falling 7.2 percent.

RBA Governor Glenn Stevens and his board kept the nation’s benchmark interest rate at 2.75 percent at a meeting today, as forecast by 25 of 28 economists in a Bloomberg survey.

“It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy,” Stevens said in a statement today.

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