The dollar steadied on Friday, given some breathing space after a recent surge by the euro lost momentum in the wake of dovish comments by a policymaker, while profit-taking trimmed some of the Australian dollar’s big gains made on an unusually strong domestic jobs report.
The Aussie was down 0.5 per cent at $0.7247 after soaring more than 1 per cent to a high of $0.7335 on Thursday after data showed Australia’s jobless rate had hit a 19-month low in November.
The euro was little changed at $1.0936 after shedding about 0.7 per cent overnight. It was forced back from a 1-month high of $1.1044 scaled midweek after ECB Governing Council member Erkki Liikanen had said on Thursday the central bank stands ready to ease monetary policy further if required.
An overnight rebound on Wall Street, which ended a 3-day losing run, also slightly improved risk appetite and nudged up US debt yields in favour of the dollar.
The common currency was still poised to end the week on a 0.5 per cent gain, having soared after the ECB delivered a much tamer-than-expected monetary easing package late last week and disappointed euro bears.
Divergent monetary policies
The greenback may have suffered big losses against the euro this week but the seemingly inevitable divergence in US and European monetary policy was expected to continue supporting the dollar in the longer term. The Federal Reserve is widely expected to hike interest rates next week for the first time in nearly a decade.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, noted that whether investors continue to cover short positions in the euro when German bond yields have stopped rising is a key factor deciding if the common currency can sustain its recent gains.
“Unless a powerful dollar-bearish factor emerges, the euro’s recent bounce is likely to peter out,’’ he said.
The dollar was up 0.4 per cent at 122.06 yen, putting further distance between a 1-month low of 121.075 plumbed earlier in the week. The dollar was still on track for a 1 per cent weekly loss versus the yen. The safe-haven Japanese currency attracted bids this week as a slide in commodity prices bruised investor risk appetite.
Rand near fresh record low
Elsewhere, the South African rand fetched 15.3885 per dollar, struggling not too far from a fresh record low of 15.4895 hit overnight. Investors have dumped the rand, their confidence rattled when South African finance minister Nhlanhla Nene, known as a fiscal conservative, was sacked on Wednesday.
Nene’s dismissal comes after rating agency Fitch had last week downgraded South Africa to BBB-, a notch above “junk’’ status, citing a further weakening in economic performance and potential. Fitch had said on Thursday that Nene’s exit raises “fiscal policy questions’’.
“It is difficult to imagine the rand bottoming out anytime soon, but I don’t think its decline will strongly impact emerging market currencies in general,’’ said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
Lower oil prices kept other commodity-linked currencies on the defensive. The Canadian dollar touched a new 11-1/2-year low of C$1.3654 to the greenback.
Norway’s crown fared a little better. The Norwegian currency fetched 9.47 crowns per euro, with data overnight showing a rise in inflation helping it move away from a 10-week trough of around 9.60 struck earlier this week.
China’s yuan hit a 4-1/2-year low of 6.4515 to the dollar. Markets have been rife with speculation that Beijing would allow the yuan to depreciate after the currency’s inclusion into the IMF’s Special Drawing Rights basket.