FX Roundup: Dollar dominates EM, commodities linked currencies

The dollar continued to trade higher against emerging market and commodities-linked currencies on Monday, while the pound registered a rise versus the euro but slid against the dollar.

At 1435 BST, the pound was down 0.05% against the dollar changing hands at $1.5172, and up 0.28% against the euro changing hands at €1.3590. Meanwhile, the dollar slipped against the yen, down 0.42% at JPY120.08, but rose 0.03% against the Swiss franc to change hands at CHF0.9798.

Analysts at Sucden Financial said the week began on a hesitant note as investors look to data for direction.

“A somewhat disappointing September FOMC meeting, as policymakers in the US opted to keep interest rates unchanged despite the hype surrounding the decision among market participants around the world, US Federal Reserve chair Janet Yellen offered additional clarity late last week.”

The yen continues to find firm support around JPY120.00 against the dollar as Chinese growth concerns continued to weigh heavily on investor sentiment. “The pound sterling faced another under pressure week last week as selling dominated trading activity and dollar strength saw the pound lose over 2.6% throughout the week,” Sucden analysts concluded.

In a speech at the University of Massachusetts on Thursday evening, Yellen said, “Most FOMC participants, including myself, currently anticipate an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.”

Yellen said she expects inflation to return to the Fed’s 2% target over the next few years and that weak growth in emerging economies will not have a big enough impact on the US to influence policy.

Meanwhile, emerging market and commodities exporters’ currencies continued to trade lower against the dollar in line with traders’ expectations. The dollar rose against the Singapore dollar (up 0.23%), Korean won (up 0.04%), Thai baht (up 0.40%), Taiwan dollar (0.24%) and Malaysian ringgit (up 0.85%) for a fourth successive session.

Elsewhere, the Australian dollar fell against the greenback yet again, shedding 0.43% changing hands at US$0.6994. Concurrently, the New Zealand dollar fell 0.74% against its US counterpart changing hands at US$0.6338 extending the decline seen towards the end of last week. The greenback also rose a couple cents against the Canadian dollar changing hands at CAD$1.3337.

Rabobank’s senior FX strategist Jane Foley said all eyes would now be on Canada’s monthly GDP report for August due later this week. “The market is expecting a decent 0.2% month-on-month increase. The report will be key in determining whether Canada is keeping pace, or even outpacing US growth at present.

“While the value of USD/CAD is highly sensitive to oil prices and may yet see further gains, we favour the CAD versus the AUD. We see scope for further easing by the Reserve Bank of Australia this cycle but expect the Bank of Canada to remain on hold. We look for a move towards AUD/CAD0.88 on a 12-month view."