Dollar nurses losses as euro rallies, commodity currencies surge

SYDNEY/TOKYO  – The dollar nursed broad losses on Wednesday, having suffered its biggest one-day fall in over a year as it came under pressure from many fronts amid oil-fueled gains by commodity currencies.

Buyers snapped up commodity currencies as the oil market extended its recovery and copper prices also surged.

Elsewhere in the market, the euro recovered on hopes that Greece may yet secure a new debt deal.

The euro's rally from Tuesday's low of $1.1312 went as far as $1.1534. It last traded at $1.1470, well off an 11-year trough of $1.1098 set last week.

That contributed to a 0.9 percent slide in the dollar index, its biggest one-day fall since October, 2013. The index last traded at 93.758 after stooping to 93.25 overnight.

In a development that supported the battered euro, Greek Prime Minister Alexis Tsipras sought to reassure international partners that Athens did not want to create divisions in Europe with its call for a new debt accord and said he was open to listening to alternative proposals.

Yet, there was still plenty of uncertainty whether Tsipras will be successful, suggesting the rally in the euro was more about positioning rather than any change in fundamentals, traders said.

Commodity currencies remained in the spotlight with crude oil up about 19 percent over the past four sessions, while copper saw its biggest one-day gain since July 2013. Oil's recovery helped spur a global rally in risk assets.

"It feels a little strange seeing crude oil and equities move in tandem, as higher oil under normal circumstances would slow economic growth. But we just have to go with the flow, and brace for 'risk on' when oil goes up," said Bart Wakabayashi, head of forex at State Street in Tokyo.

"Currencies appear to be at the whim of the oil market. For now oil has become an indicator of risk appetite," he said.

The Australian dollar hovered around 78 US cents, staging an impressive turnaround from a slump to a six year trough of $0.7627.

The short-covering rally followed the Aussie's slump on Tuesday, when the Reserve Bank of Australia (RBA) cut interest rates to a record low 2.25 percent.

The Canadian dollar jumped for a second session to two-week highs of C$1.2353 per US dollar. It last traded at C$1.2428.

Sterling climbed to $1.5198, pulling further away from a near 19-month low of $1.4952 set last month. The British currency had posted its best session in nearly 10 months on Tuesday.

Against the yen, the dollar fared better as US Treasury yields jumped and a rally by Tokyo shares lessened the allure of the safe-haven Japanese currency. The greenback was rose 0.3 percent to 117.95, having recovered from a low of 116.87.

Traders said the dollar's recent rally to multi-year highs against the yen and euro could falter as doubts emerge over whether the Federal Reserve will raise interest rates this year.

"When most central banks across developed and emerging economies are in easing mode, the assumption that the Federal Reserve will raise rates this year is starting to look questionable," said David Absolon, Investment Director at Heartwood Investment Management.

"For Fed policymakers, the external environment and the actions of other central banks are becoming increasingly hard to ignore," he wrote in a note to clients. – Reuters

US businesses set to step up capital goods spending

Washington — A gauge of planned business spending on capital goods rose in June, buoying hopes of an acceleration in economic growth in the second half of 2013.

The data on Thursday was the latest to suggest factory activity was regaining some momentum after hitting a soft patch earlier this year and it fit in with views that the drag on the economy from tighter fiscal policy was ebbing.

A separate report showed new claims for jobless benefits edged higher last week, but remained within a range that suggests the labor market's recovery is on track.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.7 percent last month, the Commerce Department said. May's gain was also revised higher, to 2.2 percent from 1.5 percent.

"That seems to portend an increase in capex as we roll into the third quarter and suggests that third-quarter growth is going to pick-up," said Jacob Oubina, senior US economist at RBC Capital Markets in New York.

However, shipments of these so-called core capital goods—used to calculate equipment and software spending in the gross domestic product report, fell 0.9 percent last month. The drop, which followed a 1.9 percent increase in May, was a reminder of just how much economic growth in the second quarter slowed.

Forecasting firm Macroeconomic Advisers cut its projection for second quarter GDP growth by two-tenths of a percentage point to a 0.5 percent annual rate on the weak shipments number. JPMorgan also lowered its forecast to 0.5 percent.

Higher taxes and deep government spending cuts have dampened economic activity in the first half of the year, but the drag appears to be fading.

In addition to the increase in planned business investment spending, the report showed overall orders for long-lasting manufactured goods jumped 4.2 percent as demand for transportation goods and machinery increased.

It was a third straight month of gains and pushed orders for these goods, which range from toasters to aircraft, to a record high, surpassing the previous peak reached in December 2007, the month the economy slipped into recession.

Labor market improving

While a separate report from the Labor Department showed initial claims for state unemployment benefits increased 7,000 to 343,000 last week, economists said volatility linked to annual auto plant shutdowns was likely distorting the picture.

Automakers traditionally close plants in July for retooling. However, they have either shortened the shutdown period or completely forgone the closures, throwing off the model that the government uses to adjust the data for seasonal variations.

A four-week average of new claims, which irons out the week-to-week volatility, held at levels that economists say are consistent with improving labor market conditions.

"It appears from the four-week average of claims that there is no evidence of a pickup in job losses in July," said John Ryding, chief economist at RDQ Economics in New York. He said that bodes well for next week's report on employment growth in June. Economists expect that report to show US employers added 184,000 workers to their payrolls.

Although a surge in bookings for civilian and defense aircraft and solid demand for motor vehicles buoyed orders for durable goods in June, there were also signs of strength in other categories.

In addition, unfilled orders recorded their largest gain since December 2007. Even more encouraging, order books for core capital goods rose a solid 1.7 percent.


"With unfilled orders on the up and core orders swinging higher the odds of a shift higher in investment spending, so critical to the economic outlook, is beginning to gel," said Eric Green, chief economist at TD Securities in New York. — Reuters

source: gmanetwork.com