Dollar Gains as Falling Oil Damps Demand for Riskier Currencies

Updated on
  • Currency dropped Monday after comments from Fed’s Brainard
  • Futures show odds of a December rate hike slip to 57%

IEA's Parry: China, Europe, India Lead Oil Demand Decline

A gauge of the dollar reversed a decline as weaker oil and iron ore prices dragged currencies of resource-exporting nations lower amid reduced investors appetite for riskier assets.

The U.S. currency strengthened against most of its 16 major peers. The Australian and Canadian dollars tumbled as iron ore futures dropped to the lowest level since July and U.S. crude oil futures fell below $46 a barrel. The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, fell Monday after Federal Reserve Governor Lael Brainard said the case for the central bank to raise interest rates is “less compelling.”

While the probability of a Fed rate increase at next week’s meeting dropped by eight percentage points on Monday to 22 percent, the prospect of a December move slipped to 57 percent, from 60 percent Friday, futures price indicate. The European Central Bank left policy unchanged last week and President Mario Draghi played down the prospect of further stimulus. Fed officials are scheduled to announce their next policy decision on Sept. 21, the same day as the Bank of Japan.

“Brainard’s speech does not seem to have a sustained impact on the FX markets and suggests other factors may be at play that could keep the dollar supported,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London. “Investors’ concerns that, as the Fed is moving closer to hiking rates, the likes of the ECB and the BOJ are running out of options to ease further.”

Dollar Advances

Bloomberg’s Dollar Spot Index rose 0.5 percent as of 9:18 a.m. New York time, after dropping 0.3 percent Monday. The greenback was little changed at $1.1229 per euro. The Aussie slid 0.7 percent to 75.16 U.S. cents, a day after it strengthened 0.3 percent. Canada’s dollar weakened 0.8 percent to C$1.3143 against its U.S. peer.

“The lack of U.S. data and the start of the Fed blackout period need not stand in the way of further” dollar out-performance, Marinov said.