Photographer: Carla Gottgens/Bloomberg

Dollar Slips as Rebound in Commodities Prices Buoys Aussie, Kiwi

  • Bloomberg's index of raw materials climbs to two-month high
  • Aussie extends its longest winning streak since March 2009

The dollar fell to a seven-week low as a rebound in commodity prices spurred gains by the currencies of resource-exporting nations, including Australia and New Zealand.

The Australian dollar extended its longest streak of gains since March 2009 and New Zealand’s currency touched its strongest since July. Currencies of commodity exporters are rallying at the expense of the U.S. dollar amid speculation that the Federal Reserve may refrain from raising interest rates until 2016, even as officials say they’re still ready to tighten policy this year.

"We’re seeing a push back of Fed expectations ," Elsa Lignos, a senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in New York. "You’re just seeing a liquidation of dollar longs, you’re seeing the dollar underperform a lot of currencies." A long position is a bet that an asset will increase in value.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers including its Australian counterpart, fell less than 0.1 percent to 1,192.08, its lowest level since Aug. 24, as of 5 p.m. in New York.

Australia’s dollar rose for a ninth day, climbing 0.4 percent to 73.62 U.S. cents, after advancing the most since December 2011 last week. New Zealand’s kiwi, named for the image of the flightless bird on its NZ$1 coin, added 0.5 percent to 67.18 U.S. cents. It rose last week by the most in almost four years.

China Stimulus

“We’re more positive about commodity currencies in the medium term as they’ve weakened significantly since May and a lot of bad news is already in the price,” said Roberto Mialich, senior Group-of-10 currency strategist at UniCredit SpA in Milan, which told clients on Oct. 8 to buy Canadian dollars against the U.S. currency. “Another key factor that supported them is that the broad-based dollar momentum is no longer there, as the market cut back on fed funds rate expectations.”

Both currencies fell to more than six-year lows in the third-quarter amid a rout in commodities that saw Bloomberg’s measure of prices tumble the most since the global financial crisis. That index is near a two-month high.

Speculation is also mounting that China will again intervene to bolster its slowing economy with targeted stimulus. The People’s Bank of China raised its yuan fixing to the strongest since Aug. 12, the day after a surprise yuan devaluation that triggered the currency’s steepest decline in two decades.

Futures show a 39 percent likelihood that the Fed will raise rates by December, down from 59 percent a month ago. The calculations are based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff, versus the current target range of zero to 0.25 percent.

Atlanta Fed President Dennis Lockhart reiterated on Monday that he backs a rate increase in October or December. Fed Vice Chairman Stanley Fischer, meanwhile, said on Sunday that the economy may be strong enough to merit a rate increase in 2015.

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