Dollar Bulls Celebrate as Fed Drives Seventh May Gain in a Row

  • Aussie and yen are biggest casualties of strengthening dollar
  • Greenback strengthens versus most major peers in May

Sell in May Even if Fed Eyes a June Hike?

Sell in May and go away turns out to be a good idea if you sold some of your other investments and bought dollars.

A Bloomberg gauge of the U.S. currency is on track to rise for a seventh straight May, after a parade of Federal Reserve officials including Chair Janet Yellen hinted at higher U.S. interest rates as soon as their gathering on June 14-15.

The yen and Australian dollar have been the biggest casualties among developed-market currencies, with the Bank of Japan and Reserve Bank of Australia each having the opportunity to add to stimulus at policy meetings next month.

While the U.S. interest-rate path may be supportive for the dollar, analysts said the outlook for the currency could be muddied by events in June including Britain’s vote on its European Union membership, a general election in Spain and Japan’s decision on its sales tax.

“The dollar has done well in May, but right now we are not focused on dollar-centric risks, given the dense data and event-risk calendar in June,” said Ned Rumpeltin, the European head of currency strategy at Toronto Dominion Bank in London. “While we are paying close attention to the dollar driver, we are also keeping careful tabs on what is unfolding on the other side of the trade.”

Dollar Gains

The U.S. currency was little changed Tuesday at 111.18 yen as of 10:01 a.m. New York time, after reaching a one-month high of 111.45 Monday. It’s gained 4.4 percent versus the yen in May, appreciated 2.5 percent against the euro to $1.1170, and strengthened 4.8 percent to 72.53 cents per Australian dollar.

Bloomberg’s Dollar Spot Index, which tracks the currency against 10 major peers, has risen about 3.4 percent this month, its best May performance since 2012. The U.S. currency has appreciated against 15 of its 16 major peers this month.

Futures trading indicates a 57 percent chance the Fed will raise interest rates from the current range of 0.25 percent to 0.5 percent by July, compared with 26 percent odds a month ago.

The Australian dollar jumped 1 percent Tuesday after data showed the contribution of net exports to first quarter gross domestic product and April building approvals both exceeded analysts’ estimates. It’s still poised for a second monthly decline after the RBA unexpectedly lowered the benchmark rate to a record 1.75 percent on May 3. Policy makers next meet on June 7.

The yen is set to halt three straight months of gains. The BOJ announces its next policy decision on June 16 after refraining from additional easing at the last meeting in late April, opting to take more time to assess the impact of negative interest rates.

“The Aussie has been slapped lower by the sheer coincidence of dovish factors for the RBA,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “For the yen, there was excessive strengthening in a short period of time because of policy misinterpretation or interpretation. It jumped so much it was liable to some correction. Inherently, it has become somewhat more volatile as people await the BOJ.”

Before it's here, it's on the Bloomberg Terminal.