Dollar Falls From 14-Month High as Production DeclinesAndrea Wong
The dollar fell from the highest level in 14 months against its major peers after data showed U.S. industrial production unexpectedly dropped in August.
The Bloomberg Dollar Spot Index climbed earlier amid bets the Federal Reserve will change its stance this week on keeping rates low for a “considerable” time after ending bond purchases. U.S. Treasury yields declined, damping the appeal of dollar-denominated assets, and the greenback fell against the yen for the first time in six days. A gauge of emerging-market currencies decreased.
“Soft data did contribute to today’s move; Treasury yields are slightly lower,” Eric Viloria, a strategist at Wells Fargo & Co. in New York, said in a phone interview. “There’s a bit of cautiousness ahead of the Fed meeting. Positioning in dollar longs is a bit stretched. That could restrain the dollar going forward.” Long positions are bets a currency will gain.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell as much as 0.1 percent to 1,049.31 after rising earlier to 1,052.14, the highest since July 2013. It was little changed at 1,050.55 at 5 p.m. New York time.
The dollar weakened 0.1 percent to 107.19 yen after reaching 107.39 yen on Sept. 12, the strongest since September 2008. The U.S. currency gained 0.2 percent to $1.2940 per euro. The European currency fell 0.3 percent to 138.70 yen. Japanese financial markets were shut today for a national holiday.
Australia’s dollar dropped as much as 0.6 percent to 89.84 U.S. cents, the lowest since March 12, after the weakest growth in China, the nation’s biggest trade partner, since the global financial crisis. The Aussie pared its loss to 90.28 cents.
“The risks now are building for the Australian dollar, not just from the U.S. higher yields, but from the Chinese angle as well,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “We’ve seen the Aussie already moving below 90, giving quite a bearish signal. It’s an important week for global risk-assessment.”
Chinese industrial output rose 6.9 percent from a year earlier in August, the statistics bureau said Sept. 13. That was down from 9 percent in July and the slowest pace outside the Lunar New Year holiday period of January and February since December 2008, based on previously reported data compiled by Bloomberg.
Output at U.S. factories, mines and utilities fell 0.1 percent in August after a 0.2 percent gain the prior month that was smaller than previously reported, Fed data showed. The median forecast in a Bloomberg survey of 79 economists called for a 0.3 percent rise. Manufacturing declined 0.4 percent as auto production slumped 7.6 percent.
Yields on benchmark U.S. 10-year notes fell for the first time in eight days. They declined two basis points, or 0.02 percentage point, to 2.59 percent after touching a two-month high of 2.62 percent.
Data are “obviously hurting the market, and there’s also some correction in the Treasury market pushing yields lower and weighing on the dollar,” said Masafumi Takada, a New York-based director at BNP Paribas SA. “The market has been positioning long dollar against yen and euro for quite a while now, so it’s reducing a bit before the event.”
Hedge funds and other large speculators trimmed their net bullish dollar bets versus eight of the currency’s major peers. The difference in the number of futures wagers on a rise in the dollar compared with those on a drop -- so-called net longs -- fell to 144,377 contracts, from 174,876 a week ago, data from the Commodity Futures Trading Commission in Washington showed.
The policy-setting Federal Open Market Committee begins a two-day meeting tomorrow amid speculation it will revamp its public guidance on the path of interest rates. The central bank has said since March rates would stay low for a period after it completes a bond-buying program under the quantitative-easing stimulus strategy. The purchases are on track to end this year.
The Fed has held its benchmark interest-rate target in a range of zero to 0.25 percent since 2008 to support the economy. It last raised interest rates in 2006.
There’s a 78 percent chance the Fed will raise the target for overnight lending between banks by its September 2015 meeting, fed funds futures data compiled by Bloomberg showed.
“The strength of the dollar is something we’ve been anticipating,” Dan Morris, a global investment strategist at TIAA-CREF Asset Management, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro in London. “You do see a negative reaction on the part of emerging markets when those currencies do start to weaken against the dollar, with cash flowing back to the U.S.”
A Bloomberg index of 20 developing-nation currencies sank for a sixth day as the prospect of rising U.S. interest rates hurt the appeal of higher-yielding assets. The gauge dropped 0.3 percent to 88.99, its lowest level on a closing basis since February.
Russia’s ruble slumped 1.6 percent to 38.385 per dollar and touched 38.50, the weakest on record. Malaysia’s ringgit dropped 1 percent to 3.2290.
“The overarching theme in terms of weakness in emerging markets of late has been the interest rate-currency nexus: the substantial move of the dollar and U.S. interest-rate expectations,” John Lomax, an emerging-market strategist at HSBC Holdings Plc, said by phone from London.
South Africa’s rand rose for the first time in six days, gaining 0.5 percent to 10.9636 per dollar versus the greenback before the nation’s central bank meets on Sept. 18.