Dollar gains traction, BOJ next up to the plate

Thu Dec 17, 2015 6:00pm EST
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By Ian Chua

SYDNEY (Reuters) - The U.S. dollar stood at its highest in two weeks against a basket of currencies early on Friday, having made a decisive move a day after the Federal Reserve delivered a long-awaited hike in interest rates.

Commodity currencies were hardest hit as the firmer greenback took a toll on a range of commodities from oil to base metals and gold. The Canadian dollar was now close to a 12-year low, having come within a whisker of C$1.40 per USD CAD=D4.

Argentina's peso plunged more than 26.5 percent on Thursday as a new government floated the currency as part of a slew of free-market reforms.

The U.S. dollar index .DXY was flirting with 99.000, holding onto a 1.2 percent gain on Thursday - its biggest rise in over a month. The greenback rose broadly on Wednesday after the Fed ended months of speculation by lifting its benchmark rate off zero.

"The USD can make new cyclical highs in the near term as US interest rate expectations adjust higher," said Elias Haddad, senior currency strategist at Commonwealth Bank.

The Fed's own projections were for 100 basis points of hikes in 2016. By contrast, the futures market was only discounting just over 50 basis points of tightening.

"We believe the FOMC's normalisation process will be gradual and expect 75 bps of rate hikes in 2016 bringing the upper‑bound of the Fed Funds target range to 1.25 percent. This will support the USD."

Against the yen, the dollar reached its highest in over a week at 122.88 JPY= before stepping back to 122.51. The euro was back at $1.0834 EUR=, off this week's peak of $1.1060.   Continued...

An employee of a money changer holds a stack of U.S.  Dollar notes before giving it to a customer in Jakarta, October 8, 2015.  REUTERS/Beawiharta