US dollar faces worst week since June as Fed liftoff bets fizzle

The US dollar slid against all but one of its 16 major counterparts after minutes from the Fed's meeting last month showed officials discussed how the strong US currency was damping inflation and exports.
The US dollar slid against all but one of its 16 major counterparts after minutes from the Fed's meeting last month showed officials discussed how the strong US currency was damping inflation and exports. PHOTO: AFP

NEW YORK (BLOOMBERG) - The US dollar was set for its worst week in four months as speculation the Federal Reserve will raise interest rates this year faded and a recovery in commodity prices revived demand for riskier assets.

The greenback slid against all but one of its 16 major counterparts on Thursday after minutes from the Fed's meeting last month showed officials discussed how the strong US currency was damping inflation and exports.

The minutes noted that the dollar has "strongly appreciated" against emerging-market counterparts and climbed versus currencies of commodity exporters and the main US trading partners. Australia's dollar was poised for its best week in two years.

"The minutes showed the Fed was more dovish on inflation expectations, so unless these improve, it will be difficult for the Fed to start raising rates," said Hiroshi Kurihara, chief US economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "The dollar in the near-term will likely be pressured by slightly improving risk sentiment - due largely to a recovery in oil prices - that has underpinned resources currencies."

The Bloomberg Dollar Spot Index, which measures the dollar's performance against a basket of 10 major counterparts, was at 1,195.95 as of 9:07 am in Tokyo from 1,196.57 on Thursday, when it fell 0.4 per cent. It was set for 1.1 per cent slide this week, which would be the biggest decline since the period ended June 12.

The US central bank held rates near zero last month after slowing Chinese growth roiled global markets in August. Fed chair Janet Yellen has said the central bank still expects to raise its benchmark rate this year.

Commodity prices have climbed this month as traders pared bets that US rates will rise. The Bloomberg Commodity Index has gained 2.9 per cent since Sept 30, while the odds of a rate increase by December dropped from 41 per cent to 39 per cent. The calculations for borrowing costs are based on the assumption that the effective fed funds rate will average 0.375 per cent after liftoff, versus the current target range of zero to 0.25 per cent.

Oil prices are set to gain 9 per cent this week, which would be the largest advance since the period ended Aug 28.

Australia's dollar was little changed at 72.69 US cents. It has climbed 3.2 per cent this week, heading for the best performance since September 2013.