Dollar Rises for Third Day as Improving Data Put Focus on Fed

  • Markets underpricing U.S. rate hikes significantly: NatWest
  • Aussie advances to highest level in 16 months against kiwi

Bank of Singapore Sees Mini Rally for U.S. Dollar

The dollar strengthened for a third day as better-than-expected U.S. economic data fueled speculation the Federal Reserve has more reasons to raise interest rates again.

The Bloomberg Dollar Spot Index extended its firstmonthly gain since February as analysts said reports Thursday will show personal income and spending both accelerated in July, a day before the release of monthly payroll figures. Australia’s dollar climbed to the strongest in 16 months against New Zealand’s amid signs the larger nation’s economy is improving.

“We remain long-term dollar bulls as we think financial markets are underpricing future Fed rate hikes significantly,” said Mansoor Mohi-uddin, a Singapore-based strategist at NatWest Markets, a unit of Royal Bank of Scotland Group Plc. “In the near term, consensus is still largely bearish on the dollar so the currency needs U.S. data to keep firming to spark a broader recovery in the greenback.”

Treasury 10-year yields rose after the Commerce Department revised up U.S. second-quarter gross domestic product growth to 3 percent from a previous reading of 2.6 percent. Private payrolls increased by 237,000 in August, according to the ADP Research Institute, beating the forecast of 185,000 in a Bloomberg survey.

  • BBDXY rises 0.1% after gaining 0.6% in previous 2 days
    • Gauge has climbed 0.3% this month, snapping its longest losing streak since April 2011
  • USD/JPY advances 0.3% to 110.52 after reaching 110.61, highest since Aug. 16
  • Treasury 10-year yield climbs 2bps to 2.15%
  • Should U.S. inflation data and nonfarm payrolls surprise this week, there is “significant room” for Treasury yields to catch up and boost the dollar, according to Macquarie Bank
    • “Positioning also suggests that there is limited scope for further dollar weakness from here,” strategists led by Nizam Idris write in a note
  • AUD/NZD rises 0.4% to 1.1018 after touching 1.1034, highest since April 2016, after Australia 2Q business investment beat estimates
  • AUD/USD little changed at 0.7906, while NZD/USD declines 0.4% to 0.7174
  • “A better way to play the firmer China and Australia data is via AUD/NZD given the shift in relative fundamentals and market interest-rate expectations,” says Peter Dragicevich, currency strategist at Nomura in Singapore
    • China’s manufacturing PMI increased to 51.7 in August, vs 51.3 forecast in a Bloomberg survey, and 51.4 reading in July
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