FX Roundup: Dollar retains upward momentum

The dollar rose against a basket of major global currencies on Wednesday, while commodity linked currencies got a level of respite in European trading.

At 1519 GMT, the dollar was up 0.51% against the yen, changing hands at JPY118.250. Concurrently, the euro shed 0.07% against the dollar exchanging at $1.0852, while the pound changed hands at $1.4433, down 0.10% and staying firmly near five-and-half year lows versus the greenback.

The dollar also rose 0.58% against the Swiss franc changing hands at CHF1.0080. Jane Foley, senior FX strategist at Rabobank, said, “If elevated levels of risk appetite mean that investors are likely to be reluctant to short the euro this year, the same reasoning could apply to the yen. Short-covering has driven the yen higher this year as investors exit ‘risky’ trades in the region.

“Clearly the Chinese authorities have taken action to stem the outflow and this has allowed the yen to soften this morning. However, it is our view that the risks stemming from China this year will be enough to keep volatility levels heightened.”

Meanwhile, major commodity linked currencies got reprieve with the dollar sliding marginally lower in later European and early North American trading calls. The greenback fell 0.07% versus the Canadian dollar changing hands at $1.4252. The beleaguered Australian dollar clawed back 0.30% against its US counterpart exchanging at US$0.7007, while the New Zealand dollar rose 0.32% exchanging at US$0.6559.

Kit Juckes, head of forex at Societe Generale, said, “Better Chinese trade data boosted Asian currencies (including the Australian and New Zealand dollars) and weakened the yen a bit. With little on the calendar, the brighter mood may last and if it props up US yields, the dollar will out-perform the euro and the yen, while high-beta forex heaves a collective sigh of relief and quietens down.

“I can't help wondering however, if the positive response to a bounce in yuan-denominated export growth that is a reward for the yuan depreciation strategy, won't just encourage more of the same. If a weaker currency pays dividends for China, as it did for others, then chances are, we'll see more competitive devaluation in the months ahead across Asia.”

In Latin America, the dollar traded lower against major regional crosses, including the Colombian (down 0.62%), Mexican (down 0.33%) and Chilean (down 0.62%) pesos, and the Brazilian real (down 1.16%).