Friday, 20 October, 2017

Dollar at One-Month High as Investors Mull US Rate Path

Gold bars and nugget A falling gold price hit precious metal miners
Nellie Chapman | 01 September, 2016, 14:17

The case for a rate hike - a plus for the dollar - won more support Tuesday as United States consumer confidence in August sat at its highest level in nearly a year. Both Yellen and Fischer helped boost the odds of a rate hike before the end of the year.

The dollar index, which measures the currency against a basket of six majors, rose as high as to 96.143.DXY, its highest level since August 9, before falling back to 96.062, up 0.50 percent on the day. "This lined up the upcoming USA data as trading fodder for market participants". Fed Vice Chair Stanley Fischer told Bloomberg TV that the USA job market is nearing full strength and the pace of rate increases will depend on the economy's health. Oversupply remained a major concern, with USA crude stockpiles forecast to have risen by 1.3 million barrels last week, a Reuters poll showed. The pound has fallen more than 1 percent against the dollar since Friday's comments by the Fed's Yellen and Fischer. The kiwi rose to 4.8388 yuan from 4.8373 yuan, was little changed at 64.94 euro cents from 64.89 cents and fell to 55.29 British pence from 55.40 pence.

Gold is headed for the first monthly decline since May as investors price in the prospect of higher US borrowing costs by the end of the year and slowing purchases of bullion-backed exchange-traded funds. Economists expect a contraction at a 1.5 percent annualized pace as growth was shaken by wildfires in northern Alberta that disrupted oil production.

In other action, the pound pushed higher after the Nationwide Building Society said United Kingdom house-price growth picked up slightly in August (http://www.marketwatch.com/story/uk-home-prices-pick-up-despite-brexit-2016-08-31), in contrast with earlier signs that the housing market may be cooling following the country's Brexit vote in June.

On the support levels, 0.745 is the first level to watch and then 0.738.

Palladium rose 0.9 per cent after touching a five-week low of $670.72 in the previous session.

Uncertainty over a rate increase had pushed the dollar as low as 99.550 yen earlier in the month. The Conference Board said its consumer confidence index rose to 101.1 this month, an 11-month high.

"Two excellent jobs reports in June and July have put a rate hike this year well and truly back on the table, but it would seem that investors want at least one more in order to be convinced", he said.

At the same time, president of the Swiss National Bank Thomas Jordan has said negative rates are "absolutely necessary" for his country. Prices are down 8.2 percent for the month.

Mounting expectations for a Fed hike this year boosted financial stocks on both sides of the Atlantic, limiting losses in U.S. shares and helping the pan-European STOXX 600 hit its highest level since mid-August.

Europe's broad FTSEurofirst 300 index closed up 0.50 per cent, at 1,357.17.

Some doubts as to whether the U.S. central bank will be able to move next month helped European shares gain.

Two-year yields, which are more sensitive to near-term rate hike expectations, were also up 1 basis point at 0.81 percent.

As such, Morgan Stanley fixed income strategists led by Matthew Hornbach are advising traders not to fight the Fed, but to fight the Fischer and buy the dip in the fiveyear US Treasury bond. Benchmark 10-year US Treasury yields were last at 1.565 per cent, roughly unchanged from late Monday.

Gold is highly-sensitive to rising United States interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

Spot gold was little changed at $1,310.48 per ounce at 0104 GMT.

The focus on USA rates put bonds under pressure, with German Bund yields pulled up by 10-year Treasury's rise to 1.5850 percent.

Oil prices fell Tuesday, with Brent losing almost 2 percent, as the dollar rallied and glut worries grew amid forecasts for higher USA crude stockpiles and Iran's remark that it was on target to reach peak production.

Brent crude fell 1.1 percent to US$47.84 per barrel after shedding 1.8 percent on Tuesday, but remains on track for a near 13 percent gain in August. U.S. crude settled down 63 USA cents, or 1.34 per cent, at $US46.35 per barrel.