SF: Dollar Near One-Week High on Speculation Fed to Spark Inflation
Oct. 27 (Bloomberg) -- The dollar was near a one-week high against the euro before reports likely to show the U.S. recovery is gathering pace, adding to speculation more debt purchases by the Federal Reserve will cause inflation to accelerate.
Australia's dollar was within two U.S. cents of parity before the statistics bureau is forecast to report that consumer prices gained at a faster pace in the third quarter, increasing prospects the central bank will raise interest rates. New Zealand's currency weakened against Australia's after Finance Minister Bill English said the smaller nation's recovery is patchy and full-year tax forecasts may be lowered.
"People think another quantitative-easing round will successfully stimulate the economy and that eventually lifts inflation," said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia, the nation's largest lender. "The dollar has outperformed."
The dollar traded at $1.3857 per euro at 8:21 a.m. in Tokyo, from $1.3859 in New York yesterday, when it reached $1.3826, the most since Oct. 20. The dollar fetched 81.33 yen, from 81.43 yesterday. The euro fell to 112.72 yen, compared with 112.86.
U.S. orders for goods meant to last at least three years climbed 2 percent in September, the most in five months, according to a Bloomberg survey of economists before the Commerce Department report today. Separate data may show new- home purchases rose 4.2 percent last month to a 300,000 annual rate, up from the record-low 282,000 in May, economists forecast.
Quantitative Easing
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, rose 0.8 percent to 77.708 yesterday. The Fed is next due to decide on policy at its Nov. 2-3 meeting.
The difference between yields on U.S. 10-year notes and inflation-linked debt, a gauge of inflation expectations during the life of the maturity known as the break-even rate, reached 2.19 percentage points yesterday, the highest level since May 18.
The U.S. economy probably grew at a faster pace in the third quarter. Gross domestic product rose at a 2 percent annual pace, up from a 1.7 percent rate in the previous three months, according to the median forecast of economists surveyed by Bloomberg News before the Oct. 29 Commerce Department report.
Australian Inflation
Australia's currency gained 14 of its 16 most-traded counterparts before a Bureau of Statistics report that may show the consumer price index rose 0.8 percent in the third quarter, from 0.6 percent in the previous three months, according to the median forecast in a Bloomberg News survey.
Swaps traders are betting on a 48 percent chance that the Reserve Bank of Australia will increase its benchmark rate 25 basis points to 4.75 percent when policy makers meet Nov. 2, according to a Credit Suisse AG index.
"The market will look at CPI closely," said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase & Co. in Sydney. "A high number will certainly price in a November hike and help Aussie higher."
