Dollar Hits Two-Year High On Parallel Market

The dollar held steady close to a two-year high against its peers on Friday, supported by data showing strong U.S. capital goods orders, while a first-quarter GDP report to be released later in the global day could further reinforce bullishness.

The dollar index versus a basket of six major currencies stood at 98.123 after advancing to 98.322 on Thursday, its highest since May 2017.

Data on Thursday showed new orders for U.S.-made capital goods increased by the most in eight months in March.

That follows other recent U.S. data that show strength in retail sales and exports which have eased fears of a sharp slowdown in the world’s biggest economy.

According to a Reuters survey of economists, data to be released at 1230 GMT on Friday will probably show GDP increased 2.0 per cent year-on-year in the first quarter, slightly slower that the 2.2 per cent posted in the previous quarter.

“We expect the GDP data to underline steady economic recovery,” said Shin Kadota, senior strategist at Barclays in Tokyo.

“Differences in economic fundamentals is a key driver for currencies now that the Fed – and more recently the Swedish and Japanese central banks – have adopted a dovish stance,” Mr Kadota added.

Sweden’s central bank said on Thursday that recent weak inflationary pressures meant an interest rate hike would come slightly later than it had planned, sending the Swedish crown to a 17-year low.

In a move to dispel any doubt over its commitment to ultra-loose policies, the Bank of Japan on Thursday put a time frame on its forward guidance for the first time by telling investors that it would keep interest rates at super-low levels for at least one more year.

The dollar was nearly flat at 111.64 yen after shedding 0.5 per cent overnight.

The greenback has poked above 112.00 yen several times this month without building a strong enough foothold above the threshold, which has become a key technical resistance level.

While the dollar has been caught in narrow range against the yen through most of April, Mitsuo Imaizumi, chief FX strategist at Daiwa Securities, sees the next significant move would see the dollar strengthen.

“The Chinese PMI and the U.S. non-farm jobs report are due over the next week and both are expected to be quite good. There is also the next round of U.S.-China trade talks, which could further lift risk sentiment,” Mr Imaizumi said.

“The market could thus see a significant increase in ‘risk on’ during the Japanese holidays, pushing dollar/yen towards 113.00 yen.”

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing for trade talks beginning on April 30.

Larry Kudlow, director of the White House National Economic Council, said this week that the talks were making progress and that he was “cautiously optimistic” about the prospects for striking a deal.

Starting on Saturday, Japan embarks on a 10-day public holiday to mark the abdication of the emperor, who will be replaced by his son.

The euro was a touch higher at 1.1138 dollar but within reach of 1.1117 dollar, its lowest level since June 2017 plumbed on Thursday.

The single currency has shed nearly 1 percent against the dollar this week, weighed by worries about the health of the euro zone economy.

The Australian dollar nudged up 0.15 per cent to 0.7027 dollar after ending Thursday little changed.

The Aussie has lost nearly 2 per cent this week, during which it sank to a near four-month trough as soft domestic inflation data boosted the prospect of a rate cut by the Reserve Bank of Australia.

(Reuters/NAN)