Home Forex Market News Dollar at Almost 2-Year High Versus Euro; Aussie Falls on Retail

Dollar at Almost 2-Year High Versus Euro; Aussie Falls on Retail

The dollar traded at almost a two-year high against the euro on speculation an improving U.S. economy will give the Federal Reserve more reason to increase interest rates for the first time since 2006.

The greenback pared gains amid bets it advanced too much, too fast. It jumped earlier as a private report showed U.S. companies added more than 200,000 workers for a sixth month. Australia’s dollar slid to an eight-month low after retail sales grew less than economists forecast. The euro declined as a report showed manufacturing in Germany unexpectedly contracted in September.

“The dollar is a bit in overbought territory,” Sireen Harajli, a Mizuho Bank Ltd. strategist in New York, said in a telephone interview. “The market is looking for more confirmation the U.S. economy is recovering and the Fed will normalize policies. That’s the dollar’s trend. We believe this trend will continue.”

The dollar advanced 0.2 percent to $1.2607 per euro at 9:14 a.m. New York time after gaining earlier to $1.2584. It touched $1.2571 yesterday, the strongest level since September 2012. The greenback climbed as much as 0.4 percent to 110.09 yen, the highest since Aug. 25, 2008, before trading little changed at 109.64. The Japanese currency advanced 0.2 percent to 138.23 per euro.

The 14-day relative strength index for the dollar versus the euro has stayed for a week above 70, a level that some traders see as a signal that an asset may be about to reverse course. It was 81 today. The greenback’s 14-day RSI versus the yen was 81.

‘Key Levels’

“We’re at these quite key levels in both euro-dollar and dollar-yen,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “The sentiment we tend to see from particularly hedge funds who have struggled with performance this year is that when they have some profits in trades they tend to very quickly take the profits or stop out the trades if they’re not going their way.”

The greenback jumped as a report showed U.S. companies hired 213,000 workers in September, figures from the ADP Research Institute in Roseland, New Jersey, showed today. The median forecast of 41 economists surveyed by Bloomberg called for a September advance of 205,000. Estimates ranged from 160,000 to 255,000.

Australia’s dollar slid versus most of its 16 major peers after the nation’s statistics bureau said retail sales grew 0.1 percent in August, compared with the median forecast for a 0.4 percent advance. The Aussie fell 0.3 percent to 87.18 U.S. cents and reached 86.63, the weakest since Jan. 24.

‘Fresh Lows’

“Looking at the detail of the retail-sales report, it’s fairly weak,” said Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking Corp. “It’s hard not to see the Aussie dollar making fresh lows. A test of the around-86.60 level seems like a pretty good chance on the back of this data.”

The euro slid for a second day against the dollar after a purchasing managers index of manufacturing in Germany, the euro area’s largest economy, fell to 49.9 last month, according to London-based Markit Economics. That’s the lowest level since June 2013 and below the 50 level that indicates expansion. Factory activity also contracted in France.

The euro has tumbled about 10 percent versus the dollar from a 2 1/2-year high reached in May as the ECB unveiled unprecedented stimulus, including purchases of asset-backed securities, to combat a slide in inflation. A weaker currency may suit central bank President Mario Draghi by making exports more competitive, as well as increasing consumer prices on higher import costs.

ECB Meeting

The ECB is forecast to keep interest rates unchanged at a meeting tomorrow, according to analysts surveyed by Bloomberg News, after unexpectedly dropping them to records on Sept. 4. Still, Draghi said Sept. 22 policy makers “stand ready to use additional unconventional instruments” if necessary.

The proportion of euro holdings in allocated official reserves dropped by 3.5 percent, the biggest decline since the first quarter of 2009, according to International Monetary Fund figures released yesterday. The euro’s share stood at 24.2 percent in the second quarter from 25 percent in the prior three months, while the dollar’s rose to 60.7 percent from 60.3 percent.

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