29 July 2004, 13:25  Dollar extends rally to two-month high vs yen

The dollar hit a two-month high on the yen on Thursday as investors eyed rising oil prices and waited to see if U.S. data would confirm recent optimism on the economy and the prospect of higher interest rates. U.S. weekly jobless claims are due later in the day although dealers said more attention would be paid to data on Friday showing how fast the U.S. economy grew in the second quarter. "The dollar has had a good run and people are now waiting for more information on the strength of the U.S. economy," said Mark McFarland, currency strategist at UBS. "The big story is oil prices which are having an impact on the yen crosses." The dollar hit six-week highs against the euro on Wednesday as robust U.S. consumer confidence data earlier in the week reinforced the Federal Reserve's view that a recent pause in the U.S. recovery would be short-lived. Further signs of strength in the U.S. economy would reinforce expectations of a U.S. interest rate rise when Federal Reserve policymakers meet on August 10, giving further fuel to the dollar's rebound. The dollar jumped above a 112.00 yen for the first time since late May, up over 0.3 percent on the day. The greenback was slightly higher on the day at $1.2020 to the euro , having knocked the single currency below $1.2000 on Wednesday for the first time in six weeks.
NUMBER-CRUCHING
The market is now looking to the release of initial U.S. jobless claims and the U.S. employment cost index later on Thursday and gross domestic product on Friday. The market expects jobless claims to have risen slightly to 340,000 for the week to July 24, while employment costs are expected to have risen 0.9 percent in the second quarter after a 1.1 percent gain in the first. The oil market was also in focus after Russian oil giant YUKOS was ordered to stop oil sales, pushing global oil prices near their highest levels in at least 21 years. The news heightened fears over the lack of spare capacity in the international oil system. "A big question with rising oil prices is whether central banks will continue to hike interest rates," said McFarland at UBS. The yen was also undermined by news industrial production fell 1.3 percent in June from May, more than most economists had expected. "Although the reading was below market consensus, it is widely thought that production has been easing slightly recently after a rapid expansion earlier in the year," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.
ANTIPODEAN INTEREST
The New Zealand dollar performed strongly after the country's central bank raised interest rates by a quarter of a percentage point to their highest level since April 2001. The widely-expected move brings rates to six percent, the highest in the industrialised world, and means the bank has raised rates by a total of one percentage point this year. The New Zealand dollar gained half a percent against its U.S. counterpart to US$0.6330 and jumped to its highest against the Australian dollar in over two weeks. The Australian dollar was on the back foot after data showed Australia's trade deficit widened unexpectedly in June to A$2.2 billion. The monthly trade shortfall had been trending down slowly since a year ago, when it blew out as the country's worst drought in 100 years savaged farm exports. The Reserve Bank of Australia holds its monthly board meeting next Tuesday, but is not expected to change policy, particularly after benign consumer price data earlier this week suggested little urgency for an interest rate increase in Australia.///

© 1999-2024 Forex EuroClub
All rights reserved