TOKYO/SYDNEY, Jan 9 — The dollar hovered close to seven-week highs against a basket of major currencies in Asia today, after an upbeat US private-sector jobs report drove US short-term yields and market rates higher and raised expectations for key payrolls data later this week. The dollar index was slightly higher on the day at 81.037. It rose as far as 81.166 yesterday, a high not seen since late November, after the weekly ADP report showed private employers added a bigger-than-expected 238,000 jobs in December, the strongest increase in 13 months. The ADP data lifted hopes that non-farm payrolls tomorrow will surprise on the upside and pushed 2-year Treasury yields to a four-month high of 43 basis points. “The ADP numbers were quite strong, and if the payrolls report surprises on the upside, too, that would help push up the dollar,� said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank. Minutes from the Federal Reserve’s December 17-18 meeting showed the central bank wanted to err on the side of caution even as it began to scale back its massive bond-buying stimulus. But market participants have already begun to price in tighter policy sooner rather than later, when the tapering is finished. Many expect the central bank to make its final asset purchases at the end of this year, Sera said. Fed fund futures sold off with big losses seen in the late-2015 through to 2018 contracts, such that a first hike in rates is now fully priced for July 2015. Just last month it was not priced in until early 2016. “Our economist thinks the FOMC is on track to continue tapering in measured steps, on course for ending asset purchases by the end of this year. Against this backdrop, we remain constructive on the US dollar,� analysts at BNP Paribas wrote in a note to clients. The dollar rose to a one-week high of ¥105.135 yesterday and was last steady on the day at ¥104.87. It hit a five-year high of ¥105.45 earlier last week. The dollar is likely to gain against its Japanese counterpart this year on widening yield differentials between the two countries as the Fed tapers and the Bank of Japan, by contrast, keeps its ultra-easy policy stance aimed at stoking inflation. BOJ board member Sayuri Shirai said it might even be desirable to take more than two years to achieve the central bank’s inflation target if the burden on households and the corporate sector proves to be excessive, according to the text of a speech released today. Shirai also said there is a lot of uncertainty about the time frame for the BOJ’s 2 per cent inflation target and that the central bank has yet to anchor inflation expectations around 2 per cent, according to the text of the speech. The euro edged up slightly to US$1.3588 after sliding to a one-month low of US$1.3552 yesterday. The common currency is likely to stay under pressure in the lead up to the European Central Bank policy meeting later today and could fall further if the ECB highlighted the risk of disinflation, traders said. The euro also edged up against the yen to 142.50 but remained well below last week’s five-year high of ¥105.45. The Australian dollar lost ground against the broadly firmer greenback, dipping back below 89 US cents as it continued to relinquish last week’s gains despite data showing the country’s retail sales and house building surpassed expectations in November. It was last down 0.3 per cent at US$0.8878 after earlier brushing a one-week low of US$0.8863. But the Aussie was underpinned by Chinese inflation data, which suggested less chance for tighter monetary policy in its biggest trading partner. China’s annual consumer inflation slowed more sharply than expected to a seven-month low of 2.5 per cent in December. That eased market fears of policy tightening, although the central bank is tapping the brakes on bank liquidity. — Reuters

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