US dollar stronger with December Fed rate hike in play as oil extends rebound

The US dollar held gains near the strongest level since August after the Federal Reserve put the prospect of a December interest-rate increase back in play.
The US dollar held gains near the strongest level since August after the Federal Reserve put the prospect of a December interest-rate increase back in play.PHOTO: AFP

WELLINGTON (BLOOMBERG) - The US dollar held gains near the strongest level since August after the Federal Reserve put the prospect of a December interest-rate increase back in play. Index futures were mixed after banks drove the Standard & Poor's 500 Index to a two-month high.

The Australian and New Zealand dollars extended losses into a third day amid bets their central banks are mulling further rate cuts. The Reserve Bank of New Zealand said Thursday that more easing is likely after keeping rates on hold following three reductions. S&P 500 futures retreated with those on Korean shares, while contracts on Japanese equities and Australia's benchmark gauge rose. Oil extended its rebound above US$46 a barrel.

"Near term, you're definitely likely to see the dollar strengthen," said Brendan Murphy, a senior portfolio manager at Standish Mellon Asset Management Co. "December is really very much on the table in terms of the potential for a rate increase."

Odds the Fed will move on rates at their last meeting of the year rose to 48 per cent, from around 32 per cent a week ago, after the central bank left borrowing costs unchanged while dropping a reference to global risks and asserting that economic growth remains "moderate."

With policy makers globally keeping their hand on the stimulus tiller amid concern over a China-led slowdown, the Bank of Japan's statement on Friday will be keenly watched by investors. Thursday is the final day of the Chinese Communist Party plenum.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed at 1,217.89 as of 8:05 am. Tokyo time after jumping 0.6 per cent on Wednesday.

Australia's dollar, known as the Aussie, weakened 0.2 per cent to 71 US cents, bringing its three-day drop to 2 per cent, after bets on a rate cut rose to 70 per cent last session, from 34 per cent on Monday, according to swaps data.

The kiwi was down 0.3 per cent to 66.84 US cents from its Wednesday closing level, despite recovering some ground after the release of the RBNZ's statement. The Wellington-based central bank said some a further reduction in the official cash rate "seems likely" but that policy makers will be watching and waiting as they decide whether to move again. Surging house prices in Auckland and below-target inflation are complicating Governor Graeme Wheeler's efforts to bolster economic growth.

The yen was little changed at 121.05 per dollar after falling 0.5 percent Wednesday.

Australia's S&P/ASX 200 Index added 0.2 pe rcent, snapping a three-day drop, while the S&P/NZX 50 Index, the first major stock gauge to start trading each day in the Asia-Pacific region, was little changed around a record high.

S&P 500 Index futures declined 0.2 per cent Thursday following the index's 1.2 per cent surge to its highest close in two months. Financial shares led US gains, rising 2.4 per cent as the rebound in crude oil also reinvigorated energy stocks.

Futures on Japan's Nikkei 225 Stock Average were bid up 1 per cent to 19,120 in the Osaka pre-market, while yen-denominated contracts traded in Chicago dropped 0.1 per cent to 19,160 following a 1.8 per cent jump in the previous session. Kospi index futures declined 0.1 per cent in most recent trading in Seoul.

The outlook for Chinese stocks looked positive, with futures on the FTSE China A50 Index rising 0.7 per cent in most recent trade. Contracts on the Hang Seng China Enterprises Index, which tracks mainland shares listed in Hong Kong, added 0.5 per cent with those on the broader Hang Seng Index.