US dollar runs red hot as it storms towards 10-year high

There is no stopping the dollar.

The greenback is stampeding toward its strongest in at least a decade as traders re-establish bets on United States policy divergence from global stimulus.

Commodity currencies are in the line of fire, and New Zealand’s central bank meets on July 22 to weigh further easing after its Canadian counterpart cut rates this week.

“There’s more upside to the dollar,” said Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange in Washington. “There may be a bigger reaction when the rate hike actually comes than what the market is thinking.”

The Bloomberg Dollar Spot Index, which tracks the US currency versus 10 major peers, rose for a fourth week, adding 1.6 per cent to 1,208.00, a three-month high. The measure is 1.2 per cent below a 10-year high touched in March.

The greenback climbed 3 per cent from a week earlier, the biggest move in eight weeks, to $1.0830 per euro. It rose 1.1 per cent versus the yen, the first gain in three weeks.

The dollar advanced versus 14 of its 16 major peers this week after Federal Reserve chairwoman Janet Yellen indicated policymakers would look to raise interest rates by the end of the year. The US central bank is weighing incoming data for signs that the economy can withstand the first rate increase since 2006.

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target,” Mrs Yellen said in testimony before Congress.

Mrs Yellen’s comments helped the dollar gain against the euro as the European Central Bank on July 16 maintained its programme of quantitative easing. The prospect of higher US rates boosted the dollar to multiyear highs versus currencies from Canada to Australia and New Zealand.

The Canadian dollar, known as the loonie for an image of the flightless bird on the C$1 coin, slumped beyond C$1.30 for the first time since March 2009 after the Bank of Canada lowered its interest-rate target to 0.5 per cent, the second reduction this year. Policymakers are trying to boost an economy that is struggling as the price of crude oil, the nation’s top export, fell for a third straight week, the longest streak since March, and is down 51 per cent in the past year.

Loonie weakness “has come more quickly than we thought”, said Ian Gordon, a foreign-exchange strategist at Bank of America in New York. “A continued dovish Bank of Canada tone, another rate cut down the road, and increasing chances of a September Fed hike will support the US dollar versus the Canadian dollar longer term.”

Net bullish bets for the dollar to strengthen against eight major counterparts by hedge funds and money managers rose, according to Commodity Futures Trading Commission data.

Futures positions betting on a stronger greenback were at 342,909 contracts as of July 14, the most in five weeks.

New Zealand’s reserve bank may lower rates for a second consecutive month when it meets. Central bankers cited the falling price of dairy products — a major export — as a headwind for the economy after their last gathering, and said further easing might be appropriate.

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