Dollar Falls Versus Higher-Yielding Currencies as Fed Bets Fade

  • New Zealand's dollar advances versus major counterparts
  • Gain in equities helps bolster resource-related currencies

The U.S. dollar declined against higher-yielding currencies as traders pared bets that the Federal Reserve will raise U.S. interest rates this year amid signs the world’s biggest economy is cooling.

The New Zealand dollar strengthened against most major counterparts as a bounce in commodities and stocks helped the currency rebound from last quarter’s losses, when evidence of a slowdown in China damped demand for resource-related assets. A gauge of the greenback declined after the latest monthly labor data showed the U.S. created fewer jobs than analysts expected.

"In the aftermath of the data on Friday and the downgraded Fed rate-hike expectations, the market has taken it as a green light for risk, at least for now," said Daniel Katzive, head of foreign-exchange strategy for North America at BNP Paribas SA in New York.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, slid for a third day, by 0.1 percent to 1,208.28 at about 5 p.m. in New York, after touching a two-week low.

Jobs Adustment

The dollar strengthened 0.3 percent to $1.1188 per euro and rose 0.5 percent to 120.46 yen.

The U.S. Labor Department report on Oct. 2 showed the nation added 142,000 jobs in September, below the median forecast of 201,000 in a Bloomberg survey of economists. August figures were revised lower.

Traders see a 35 percent probability that the Fed will raise its target rate by December, down from a 58 percent likelihood seen a month ago, according to futures data compiled by Bloomberg. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.

While most major central banks, including the Fed, are keeping interest rates at virtually zero, New Zealand’s benchmark rate is at 2.75 percent after three rate cuts this year.

“The correction of expectations on the Fed’s monetary policy has helped bolster currencies such as the Aussie and kiwi,” said Masafumi Yamamoto, a senior strategist at Monex Inc. in Tokyo.

The Bloomberg Commodity Index and global stocks gained. New Zealand’s dollar advanced as much as 1.6 percent to 65.31 U.S. cents, its highest since Aug. 25.

"If you believe the Fed’s really on hold in Q4, that’s going to be because of a combination of global headwinds and financial market volatility feeding back into the U.S. That’s not a great environment for higher-yielding currencies," Katzive said.

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