US Dollar rises on US consumer demand

New York (Jun 11)  The dollar rose for the first time in four days as US consumer demand rose, supporting Federal Reserve plans to increase interest rates this year. The US currency strengthened as Fed policy makers focus on incoming releases as they consider the timing of their first rate increase since 2006. While the US is looking to raise borrowing costs, the Reserve Bank of New Zealand became the latest monetary authority to ease, cutting rates today. “This is good news for the dollar,” Georgette Boele, a currency strategist at ABN Amro Bank NV, said by phone from Amsterdam. “It takes away a bit of doubt about the economy and makes people more confident that a September rate hike is more likely.” The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its major peers, added 0.6 per cent to 1,178.68 as of 10:32 am in New York. The US currency advanced 0.8 per cent to US$1.1229 (RM4.20) per euro and 0.7 per cent to 123.56 yen. The New Zealand dollar led declines versus the greenback, falling 2.8 per cent. The dollar is the best performer in the past 12 months against a basket of peers tracked by Bloomberg Correlation-Weighted Indexes, rising 18 per cent. The currency has pared those gains in the past three months, sliding 3.2 per cent. Retail uptick American consumers appear ready to spend on more than just automobiles, unlocking months of savings from cheap gasoline and higher incomes as the labor market improves. A pickup in purchases—accompanied by faster wage gains—would support the outlook for growth this year. US retail sales climbed 1.2 per cent in May, matching the forecast in a Bloomberg survey of economists. Applications for unemployment benefits remained below 300,000 for a 14th week, a sign of labor market strength that will help fuel growth. “We’re unlikely to see prolonged weakness in the US dollar on the back of the solid retail sales data,” Matt Weller, an analyst at Gain Capital Holdings Inc.’s Forex.com unit in Grand Rapids, Michigan, said in a note. “The stubbornly missing ingredient has been the US consumer—that changed this morning.” Fed fund futures give a 55 per cent probability that the central bank will increase rates in September, up from 52 per cent on June 8, according to data compiled by Bloomberg. The US central bank has kept its benchmark, the target for overnight loans between banks, in a range of zero to 0.25 per cent since December 2008 to support the economy. It last raised the rate in 2006. “The consumer’s really been the major source of disappointment so far this year, so it’s great to see a good number,” said Gary Pzegeo, the Boston-based head of fixed income at Atlantic Trust Private Wealth Management, which manages about US$26 billion. “It should lead to some firming up of timing for the Fed,” which “should be dollar-supportive.”

Source: Bloomberg