Dollar steps back,
outlook still solid on diverging monetary policy paths
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[April 08, 2015] By
Shinichi Saoshiro
TOKYO (Reuters) - The dollar took a step
back on Wednesday but retained a bulk of its overnight gains after
currency bulls scooped up the greenback following the tumble induced by
weak U.S. non-farm payrolls late last week.
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The dollar index slipped 0.2 percent to 97.608 after gaining 0.9
percent overnight.
The euro nudged up 0.3 percent to $1.0847 <EUR=> after falling 1
percent overnight, when currency markets returned to full strength
following the Easter holidays. The common currency had climbed as
far as $1.1036 earlier in the week, albeit in thin trading as many
key markets were still shut for the Easter holidays.
The greenback was still roughly back at a level prior to Friday's
much weaker-than-expected U.S. jobs data release, which cooled
prospects of an earlier interest rate hike by the Federal Reserve.
The dollar, which rose as high as 120.45 overnight, was down 0.3
percent at 119.855 yen <JPY=> after the Bank of Japan's decision to
stand pat on monetary policy Wednesday despite slowing inflation.
"The dollar dipped a little but the reaction was a token one as most
in the market expected the BOJ to keep policy steady," said Bart
Wakabayashi, head of forex at State Street in Tokyo.
Hopes for further easing, however, have been building in some
quarters as the BOJ has missed its ambitious target of achieving 2
percent inflation in two years.
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"The lift on prices from the consumption tax hike will soon fade.
With the rise in prices already looking weak relative to those in
other G10 countries, the BOJ may have to stay a step ahead and act,"
Wakabayashi at State Street said.
The dollar's recent rebound was testimony to its underlying strength
as it occurred in the absence of supportive U.S. data and debt
yields, which actually dipped on Tuesday.
Moreover, the bounce helped reinforce the notion that the diverging
monetary policy theme remained a key underlying factor. The Fed is
poised to hike rates sooner or later but its euro zone and Japanese
counterparts remain committed to quantitative easing.
"The dollar bounced on underlying demand rather than on a set of
factors. The Fed may have to delay hiking rates, but it is still on
track to tighten policy when its peers are stuck in quantitative
easing," said Shinichiro Kadota, chief Japan forex strategist at
Barclays in Tokyo.
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"Investor flows continue to favour the dollar under such conditions,
with yields in Europe at very low levels and Japanese investors
seeking foreign assets as part of their portfolio rebalancing," he
said.
Japan finance ministry data on Wednesday showed Japanese investors
were net buyers of foreign stocks and bonds for the third straight
month in March. Their purchase of a net 4.311 trillion yen ($36
billion) in March was the highest in nearly five years.
Rebalancing of portfolios by large Japanese investors like the
Government Pension Investment Fund seeking alternatives to
low-yielding Japanese government bonds have helped fuel money into
foreign assets.
The Australian dollar climbed 0.5 percent to $0.7677, adding to the
previous day's big gains. The Aussie soared to as high as $0.7711
overnight after the Reserve Bank of Australia surprised some by
standing pat on monetary policy.
($1 = 119.7800 yen)
(Editing by Eric Meijer & Shri Navaratnam)
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