Dollar Holds Drop on Fed Policy Bets; Aussie Erases Gain on RBA

The dollar held losses versus most major peers as investors weigh whether U.S. economic data this week will be strong enough to assuage central bank concerns the economy still needs stimulus.

The greenback held a two-day decline against the euro after Federal Reserve Chair Janet Yellen said the world’s biggest economy will need stimulus “for some time.” Economists predict a report today will show quicker manufacturing growth, while a private survey tomorrow may indicate an improving jobs market. Australia’s dollar reached a four-month high after the Reserve Bank held interest rates unchanged, before erasing gains following a comment by Governor Glenn Stevens that the currency’s recent climb will reduce the stimulus provided to the economy.

“After Janet Yellen’s comments, the dollar came off its highs, particularly against the commodity currencies,” said Callum Henderson, the Singapore-based global head of foreign-exchange research at Standard Chartered Plc. “In the wake of a fall in cross-asset volatility with China’s PMI data also helping sentiment, you’ve seen renewed focus on carry. The higher yielding currencies in G-10 and emerging markets are doing better.”

The dollar fetched $1.3776 per euro as of 6:57 a.m. in London after falling 0.2 percent in the previous two days to $1.3769 in New York. It was little changed at 103.26 yen after rising 0.4 percent yesterday. The euro added 0.1 percent to 142.24 yen after advancing 0.5 percent to 142.13 in New York.

Australia’s dollar gained as much as 0.4 percent to 93.04 U.S. cents, the highest since Nov. 21, before trading little changed at 92.67.

Low Volatility

The MSCI Asia Pacific Index of shares added 0.1 percent, extending a 1 percent jump yesterday. Deutsche Bank AG’s Currency Volatility Index, based on three-month implied volatility on nine major currency pairs, held at 7.34 percent, after closing March 24 at 7.02 percent, the lowest since December 2012. The average over the past year is 8.55 percent.

The yen remained lower against the dollar after Bank of Japan data showed the Tankan index for sentiment among large manufacturers in the nation rose to 17 in the first quarter from 16 in the previous period. That compares with an advance to 19 forecast by analysts polled by Bloomberg News before the release.

“The Tankan was weak,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. “Some investors buying the dollar against the yen may take profits as it climbed above 103 in the past few days.”

GPIF Portfolio

Japan’s Government Pension Investment Fund said it will maintain its portfolio and deviation limits for the fiscal year beginning today, while allowing flexibility in the deviation when needed, according to a statement on its website. GPIF, the world’s biggest pension fund, had 55 percent of its 128.6 trillion yen ($1.25 trillion) of assets in Japanese bonds as of Dec. 31.

Yellen said yesterday at a conference in Chicago that the Fed hasn’t done enough to combat unemployment even after holding interest rates near zero for more than five years and pumping up its balance sheet with bond purchases.

“Yellen signaled that, while the Fed will continue tapering, they are not in a hurry to raise rates, and that was seen by the market as dovish,” said Yuki Sakasai, a currency strategist in New York at Barclays Plc.

U.S. Economy

The Institute for Supply Management’s U.S. manufacturing index climbed to 54 last month from 53.2 in February, according to the median forecast of analysts surveyed by Bloomberg. The Tempe, Arizona-based group will report the data today.

Figures tomorrow from the ADP Research Institute may show companies in the U.S. added 195,000 jobs in March after boosting positions by 139,000 the previous month, economists in a separate poll predicted.

Citigroup Inc.’s Economic Surprise Index for the U.S., which shows whether data beat or fell short of economists’ forecasts, dropped to a one-week low of minus 32.60 yesterday.

“The speculative community is already substantially short dollars at a time when data surprise indices are starting to bottom, so the risk is that we see higher numbers from the U.S. this week and some degree of short covering,” said Standard Chartered’s Henderson, referring to closing a position betting that the dollar will decline.

The dollar fell 0.8 percent in the past three months against a basket of nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro declined 0.7 percent, while the yen gained 1.3 percent and the Aussie surged 3.9 percent.

In Australia, central bank officials kept the benchmark rate at a record-low 2.5 percent today, as forecast by all 33 economists surveyed by Bloomberg.

‘Remains High’

“The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months,” RBA Governor Stevens said in a statement following the decision. “The exchange rate remains high by historical standards.”

Improvements in non-mining sectors of economy have eased some concerns about a “collapse” in domestic demand, Adam Bowe and Robert Mead, Sydney-based money managers at Pacific Investment Management Co., said in a March 2014 Australia Perspectives commentary published on the firm’s website.

Government data today showed the manufacturing Purchasing Managers’ Index for China, Australia’s biggest trading partner, rose to 50.3 last month from 50.2 in February. That compares with economists’ forecast for a reading of 50.1 in a Bloomberg survey.

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