Repatriation flows help lift Aussie to record high versus U.S. dollar
By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — The U.S. dollar managed small gains against the Japanese yen and the euro Monday, with expectations for higher interest rates insulating Europe’s 17-nation shared currency from ongoing worries about a potential Portuguese bailout, Irish banks and German Chancellor Angela Merkel’s political headaches.
Meanwhile, the Australian dollar threatened to steal the show by jumping to its highest level versus the greenback since the Aussie was allowed to float freely in 1983.
The dollar index (DXY 76.37, +0.15, +0.20%) , which measures the U.S. unit against a basket of major rivals, traded at 76.316, compared with 76.242 in North American trade late Friday.
The euro (EURUSD 1.4033, -0.0012, -0.0854%) edged lower to $1.4047 from $1.4068 late Friday, while the British pound (GBPUSD 1.5977, -0.0026, -0.1624%) slipped to $1.5972 from $1.6020 late Friday.
Analysts said weekend headlines kept the euro under some pressure. On Sunday, Merkel’s Christian Democratic Union suffered a historic defeat in a state election in Baden-Wuerttemberg, which the CDU had ruled since 1953. Read Market Pulse on German election.
Kit Juckes, head of forex research at Societe Generale, said the election results were “more of a catalyst for the euro/U.S. dollar slippage than a cause, in the sense that the euro had run out of momentum and short-dollar positioning was excessive.”
The upside remains favorable for the euro in the medium term, but a test of the $1.3970 level is likely to happen first.
Meanwhile, speculation remains that the European Central Bank may provide Irish banks with a new liquidity facility. The Wall Street Journal, citing a central-banking official, said the Frankfurt-based ECB is putting together a medium-term plan to help Irish banks remain afloat.
Against the Japanese yen, the dollar (USDYEN 81.6600, +0.3400, +0.4181%) rose to ¥81.73 from ¥81.46 in late Friday’s North American trading.
“We expect relative interest rates to remain a strong driver of [foreign-exchange] markets this week and will be especially important” for the U.S. dollar, said analysts at Barclays Capital.
The dollar ”saw a modest rebound late last week along with Fed rate-hike expectations on the back of hawkish comments from several Fed officials,” they said.
One of those officials was Charles Plosser, president of the Philadelphia Federal Reserve Bank and a voting policy- committee member this year. Under a plan he unveiled Friday, the Fed should hike interest rates from the current range near zero to 2.5% within a year.
Plosser did not give a specific time when this exit would begin but said it would have to start in the “not-too-distant future.”
Over the weekend, St. Louis Fed President James Bullard left the door open to an early end to the Fed’s quantitative-easing program, news reports said.
The Australian currency (AUDUSD 1.0259, +0.0018, +0.1758%) changed hands versus the U.S. unit at $1.0272, after pushing as high as $1.0314 in earlier activity, according to FactSet Research data. That marked its highest level against the U.S. unit since the Aussie was allowed to float freely in 1983.
“The Aussie has been particularly well bid over the past several days on repatriation flows as insurers face massive payouts on the claims from Queensland floods and the earthquake in neighboring New Zealand,” said Boris Schlossberg, director of currency research at GFT, in emailed comments.
