Dollar on course for weekly gain; kiwi leaps with inflation

SINGAPORE: The dollar headed on Friday for its best weekly gain in about a month, supported by buying on investor worries about quicker US interest rate increases and by rising virus infections, while a hot inflation reading lifted the New Zealand dollar.

The kiwi was the biggest mover amongst majors in morning trade, and was last up 0.4% at $0.7003, after consumer prices rose far faster than expected at a decade-high pace of 1.3% for the June quarter and 3.3% for the year.

The reading has brought forward rate hike expectations to next month, with markets now pricing an 86% chance the Reserve Bank of New Zealand becomes the first developed-market central bank to exit from emergency policy settings.

Still, against a firm greenback, even that startling prospect has so far failed to rouse the New Zealand currency from recent ranges, and for the week the kiwi is up just 0.1%.

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The dollar was broadly steady elsewhere on Friday but heading for weekly gains, with a rise over the week so far of 0.5% against the euro, about the same against sterling and a little more, at 0.9%, against the Australian dollar.

"Clearly the US dollar has got some power behind it, and I think that's holding back all the majors," said Westpac strategist Imre Speizer.

"There's an interest rate side to it, and sometimes it's a safe-haven bid...we do feel that the US dollar's going to be quite strong over the next few months," he said, as strong US data feeds in to higher yields and rate-increase expectations.

The US dollar index, which measures the greenback against a basket of currencies, was flat at 92.604 on Friday and up 0.5% for the week.

Ahead on Friday, traders are looking to US retail sales data and consumer confidence for any reading on inflation and the strength of the recovery. The Bank of Japan concludes a two-day meeting but is unlikely to change any policy settings.

PANDEMIC

Mood across financial markets has been dour as virus infections are surging globally. Investors have pinned hopes on what happens in highly-vaccinated England over the coming weeks, after most restrictions are set to be lifted on Monday.

Treasuries have rallied for a third week in a row as worries about the spread of the contagious Delta variant and a wager on inflation being transitory - or at least contained quickly by central bankers - has pulled long-end yields lower.

Safe-havens yen and the Swiss franc have also been firm, with the yen up 0.2% on the dollar for the week so far and headed for its best week in a month against the euro.

The yen last bought 109.98 per dollar and 129.86 per euro. The euro stood at $1.1808, not far above the three-month low of $1.1772 it tested during the week.

Sterling traded at $1.3832 early in the Asia session, having handed back some of a bounce that came with strong jobs figures and hawkish comments on Thursday from Bank of England policymaker Michael Saunders.

The risk-sensitive Australian dollar has also been a victim of the cautious mood, and of the lockdown of Melbourne and Sydney. It has fallen 0.9% on the dollar this week to $0.7423 and sits at a more than five-month low on the kiwi .

The Thai baht, among the currencies most battered by the dollar's strength and the pandemic's resurgence, tracked toward a fifth consecutive weekly loss as tourism-dependent Thailand posted record infections.

Cryptocurrencies were perilously close to the bottom of recent ranges with bitcoin at $31,660 and ether at $1,910.