Growth-linked currencies at multi-week highs on risk rally

Frankfurt (Oct 9)  Commodity and growth-linked currencies like the Australian dollar rose on Friday, and were set to end the week on a high note on the back of a risk rally that saw the safe-haven yen come under pressure.

The dollar index, meanwhile, was set for its second week of losses, after the minutes of the Federal Reserve's September meeting reinforced investors' expectations that the U.S. central bank was unlikely to raise interest rates well into 2016.

The dovish Fed minutes focused on external factors depressing outlook for inflation which analysts said, suggested rates were likely to stay lower for longer, fueling a risk rally.

The Australian dollar hit a six-week high and was set for its best weekly performance since late 2011, while oil prices surged to their highest in three months. That lifted some of the gloom that enveloped riskier asset classes like stocks and commodities in August and early-September when worries about a global slowdown and China-related issues weighed on sentiment.

"A risk rally is very much on, and the dollar-bloc commodity currencies are doing well," said Jeremy Stretch head of currency strategy at CIBC World Market. "Having said that, I would be cautious about chasing them much higher as the Fed is still in play."

The Australian dollar rose to $0.7338, its highest since Aug. 24 and up 4 percent for the week. The Canadian dollar was trading near its highest since August, while the New Zealand dollar was up 0.72 percent on the day.

With investors buying riskier currencies, the yen was under pressure. The dollar was up 0.2 percent against the yen at 120.11 yen while the euro was up 0.5 percent.

The euro also rose against the dollar, trading above $1.13, with investors' pricing in a chance of a rate hike by the Fed in the middle of 2016, having factored in the chance of a liftoff by the end of this year as recently as last month.

The minutes of the Fed's September released on Thursday revealed a deeply cautious central bank that delayed a long-anticipated tightening because policymakers wanted to make sure that a global economic slowdown was not a threat to the U.S. recovery.

"The minutes were viewed as mirroring the dovish tone to the September 17 Fed statement rather than the more hawkish message delivered by a number of Fed speakers in the aftermath of the meeting," analysts at Barclays wrote in a note to clients.

Source: CNBC