The dollar reversed losses Tuesday after hitting multimonth lows against the euro and the yen, as investors took profits on bets against the U.S. currency. Measuring the greenback against a basket of 16 currencies, was recently up 0.7% at 85.20, boosted by gains against the euro, Australian dollar and emerging-market currencies. A sharp drop in oil prices is buoying the dollar against the currencies of commodity producing countries, including a broad swathe of emerging markets. The dollar was recently up 1.3% against the Canadian dollar at 1.2695. It gained 2% against the Brazilian real, at 3.5685, and increased 2.4% against the Russian ruble, to 66.74. Light, sweet crude for June delivery recently fell $1.20, or 2.7%, to $43.56 a barrel on the New York Mercantile Exchange on renewed concerns about weaker Chinese demand and growing global supplies.
The Australian dollar was recently down 2.1% at $0.7507 after
the Reserve Bank of Australia cut its interest rate to a historic low. At the same time, some investors are eager to take profits on recent bets against the dollar ahead of Friday’s U.S. employment report, a data point that has lately been a bright spot in the country’s economy. “Dollar bears may have gotten a little ahead of themselves,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange. “The tone of U.S. data hasn’t been great, but it does not warrant the selloff in the dollar that we have seen.” Investors have turned more bearish on the dollar in recent weeks, after the U.S. economy grew slower than expected in the first quarter and the Fed signaled that it is in no hurry to raise interest rates this year. Higher rates tend to boost the dollar, as they make the U.S. currency more attractive to yield-seeking investors. Traders are bracing for Friday’s employment report, which many believe offers the clearest snapshot of how the U.S. economy is faring.
“If the jobs report is lackluster, it would give the Fed even more pause regarding tightening policy,” said Joe Manimbo, market analyst at Western Union. Aggregate positions in the dollar, which flipped not long ago from long bets on a stronger dollar to short bets on a decline in the U.S. currency, recently widened to their most bearish since May 2014, according to Scotiabank. Many bears say the latest round of economic data and decision-making by monetary policymakers has left little room for the dollar to rally. The first reading on gross domestic product growth for the first quarter was weaker than expected last Thursday. The Institute for Supply Management’s manufacturing index also dipped, data showed Monday. The Fed gave no signals about when it will lift rates next, leaving traders in the Fed funds futures market to give a June rate hike a 13% probability, CME data showed Monday. Meanwhile, investors were disappointed by the Bank of Japan, which chose not to enact further stimulus measures last week.
