Sydney: As a dollar gauge holds near its highest level in 12 years, the world’s largest currency trader is pondering when is the best time for investors to lock in profits.
The US currency climbed Monday against most major peers with the odds of a December rate increase by the Federal Reserve rising after San Francisco Fed President John Williams said there is a “strong case” for a move if domestic data hold up. Investors shouldn’t wait till next month’s meeting to exit positions as policymakers have “no incentive to please” dollar bulls, Steven Englander, the New York-based global head of Group-of-10 currency strategy at Citigroup Inc., wrote in a research note. “Monday’s trade showed that there is still fuel for the US dollar in the prospect of Fed tightening in December,” said Sean Callow, a foreign-exchange strategist in Sydney at Westpac Banking Corp. “While some are eager to sell the fact of a December tightening by talking about a dovish hike, if you try to sell the dollar in December, you buy what?”
Intercontinental Exchange Inc.’s US Dollar Index was at 99.732 as of 6:53am in London, 0.6 per cent away from the 12- year high of 100.39 reached in March. The greenback traded at $1.0630 per euro from $1.0636 on Monday, when it touched $1.0593, the strongest since April 15. It was little changed at 122.69 yen.
The US will revise its estimate of third-quarter gross domestic product to 2.1 per cent from 1.5 per cent, according to economists in a Bloomberg survey before data due Tuesday.
Futures Signal
“Assuming that we continue to get good data on the economy, continue to get signs that we’re moving closer to achieving our goals” and are gaining confidence that inflation will move back toward the Fed’s 2 per cent target, there’s “a strong case that can be made in December to raise rates,” Williams said Nov. 21, speaking with reporters at the University of California at Berkeley.
Futures indicate a 74 per cent chance on that the Fed will raise its benchmark rate at its next meeting, according to data compiled by Bloomberg. That’s up from 50 per cent at the end of October. The calculation assumes the effective fed funds rate averages 0.375 per cent after the first increase, compared with the current zero-to-0.25 per cent target range.
The Australian dollar was little changed before central bank Governor Glenn Stevens speaks in Sydney on Tuesday. The Aussie fetched 72.08 US cents, after dropping 0.7 per cent to 71.92 on Monday as metal prices plunged. It has strengthened 1 per cent since Oct. 30.
Governor Stevens “may use the opportunity to talk the Australian dollar lower to assist the low inflation outlook, and because commodity prices have continued to fall, but the Australian dollar hasn’t,” Richard Grace, the chief currency and rates strategist at Commonwealth Bank of Australia in Sydney, wrote in a research note.