MW: Dollar climbs with Bernanke testimony in focus
Aussie dollar gains after Chinese data
By Saumya Vaishampayan and Sara Sjolin, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar climbed on Monday with investors looking ahead to Federal Reserve Chairman Ben Bernanke’s testimony later in the week.
U.S. retail sales in June rose a seasonally adjusted 0.4%, less than economist expectations of a 0.9% rise, according to data released Monday. Last month’s rise was fueled by increases in gasoline prices and auto demand. Separately, the Empire State manufacturing survey for July rose for the second month, posting a reading of 9.5 from 7.8 last month.
The ICE dollar index DXY +0.26% , which tracks the U.S. currency against six rivals, pared earlier gains after the retail sales data but remained higher than Friday’s close. The ICE dollar index was 83.135 in recent trade. It traded at 83.26 earlier Monday and closed at 82.997 late Friday in North America, when the dollar had risen modestly amid euro-zone concerns, but still ended the week down 1.7%.
The WSJ Dollar Index XX:BUXX +0.27% , which uses a slightly larger comparison basket than the ICE, however, traded lower on Monday, at 75.19 from 75.40.
Last week’s losses for the greenback were largely a function of comments by Federal Reserve Chairman Ben Bernanke, who said the central bank wouldn’t immediately raise interest rates once unemployment fell to 6.5%, the Fed’s target for beginning to ease its monetary stimulus.
This timing distinction between a slowing of the Fed’s bond purchases, currently set at $85 million a month, and a rise in interest rates has gripped financial markets of late. The market has interpreted a rise in interest rates as the next step after the Fed tapers asset purchases, while the Fed has said it will wait a while before doing so, said Thomas Stolper, chief currency strategist at Goldman Sachs. “Most of the market focus is on this particular question,” he said.
A weaker data report, like Monday’s retail sales, would support the notion of a lag between tapering and interest-rate hikes, he said. “People are very sensitive to data at the moment,” said Stolper.
“In the wake of last week’s strongly dovish interpretation of his comments (and severe [dollar] reaction lower), we look for a more measured, slightly hawkish, policy tone” from Bernanke, they wrote Monday.
“Indeed, in attempting to break the recent market cycle of investor overreaction, the Fed chairman will likely attempt to further clarify the timing distinction” between when the Fed will slow its bond purchases and when it will hike interest rates, they wrote.
On Monday, the euro bought $1.3045, down from $1.3060 late Friday, while the British pound GBPUSD -0.1290% traded at $1.5088, slightly higher than Friday’s close, according to FactSet.
Japanese markets were closed Monday for the Marine Day holiday. The dollar USDJPY +0.5913% exchanged hands at ¥100.04 from Friday’s ¥99.40 after trading slightly lower earlier in the day.
Aussie up on in-line China data
The Australian dollar gained after Chinese economic data failed to show the sharp slowing some had feared. The Aussie AUDUSD +0.2420% rose to 90.77 U.S. cents from 90.60 cents at the end of the previous week, managing to hold its gains after China’s second-quarter economic growth rate printed at 7.5%.
The Chinese growth rate matched expectations despite fears of a downside surprise after China’s state media quoted the nation’s finance minister late last week as suggesting growth would slow to 7%, missing the government’s 7.5% target for the year.
The state-run Xinhua news agency later corrected its report to say the finance minister believed the economy would in fact rise by 7.5% in 2013.
Australia’s currency is often sensitive to changes in the economic outlook for China, its key trading partner.
Saumya Vaishampayan is a MarketWatch reporter based in New York. You can find her on Twitter @saumvaish.
Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin. Michael Kitchen also contributed to this report.
