LONDON: The dollar traded around a one-month high against a basket of major currencies on Wednesday, after encouraging US economic data led investors to bet that the Federal Reserve may raise interest rates this year after all. With a rise in stocks underpinning risk appetite, the dollar climbed to a two-week high of 114.45 yen.
That was more than 3 percent up from a 16-month low against the safe-haven Japanese currency two weeks ago. The Australian dollar was a big gainer on the day, up almost 1 percent at one point, on figures that showed Australia's economy outpaced all forecasts to grow at the fastest pace in almost two years last quarter.
"The move in the Aussie and the data that it was driven by, with that big rise in Australian GDP, has spilled over into a slightly better risk background more generally," said Adam Cole, RBC Capital Markets' head of FX strategy.
"For the moment the fundamental news flow is consistent with the asset prices we're seeing, and that's driving dollar/yen up and Aussie/dollar up." US factory and construction data on Tuesday offered hope the economy was regaining momentum, helping US stocks stage their biggest one-day rise in a month and close at their highest since early January. Some analysts predicted more gains were in store for the dollar.
"The dollar should regain more ground because better US data and easing global financial conditions should help the Fed keep its constructive economic outlook and signal further gradual tightening," said Valentin Marinov, head of G10 FX strategy at Credit Agricole.
"The dollar should do well against the euro and the yen as flows related to the policy divergence trade continue." The dollar index, which measures the US currency against a basket of six major rivals, was last at 98.473, up 0.2 percent from the previous day and not far from Tuesday's one-month peak of 98.570.
Westpac's currency strategist, Richard Franulovich, said the index could rise to 100 in the near term. He said a slew of US data recently bolstered the view that the economy was picking up and speculators could re-emerge to buy the dollar, after trimming favourable positions in the past few weeks.
Investors now await more US data for confirmation of the economic recovery, particularly Friday's non-farm payrolls report.
Currency markets had a muted reaction to "Super Tuesday" state-by-state primary voting, in which Republican Donald Trump and Democrat Hillary Clinton notched a series of wins that took them closer to winning nominations in the US presidential campaign.
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