Dollar firms, New Zealand central bank adjusts rate tone

NEW YORK/LONDON (Reuters) – The dollar turned up against major currencies for the first time this week as U.S. yields held steady and the Reserve Bank of New Zealand surprised markets by hinting at a future interest rate hike.

FILE PHOTO: A packet of former U.S. President Abraham Lincoln five-dollar bill currency is inspected at the Bureau of Engraving and Printing in Washington March 26, 2015. REUTERS/Gary Cameron/File Photo

The dollar index was up 0.2% on Wednesday morning in New York, but at 89.83 was still near January lows after a steady slide from the end of March.

Benchmark yields on 10-year U.S. Treasuries were steady within the range of the day before and recently at 1.55%.

The foreign exchange markets are wary of taking trends too far right now because key U.S. economic data is coming out on Thursday and Friday, said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Most important is Friday’s release of an inflation measure watched closely by the U.S. Federal Reserve. If it is stronger than expected, yields could rise and power the dollar higher. If weaker, the Fed’s low interest rate outlook could continue and the dollar’s downtrend could resume.

“Caution ahead of the event risk in the latter part of the week is helping to put a tentative floor under the dollar,” Manimbo said.

On Wednesday the New Zealand dollar popped more than 1% against the U.S. dollar after the RBNZ adjusted its tone on its outlook for future monetary policy, hinting at a possible interest rate hike by September of next year.

The RBNZ is the second major central bank after the Bank of Canada to nod toward pulling back on easy money policies.

The change drove up New Zealand government 10-year yields and reminded traders to anticipate changes in tone from other monetary authorities, despite more insistence from policy makers at the U.S. Federal Reserve that it is too early to discuss tightening.

“There are now several central banks that appear to be closer to a tightening cycle than the Federal Reserve, and markets are sensing that,” said Imre Speizer, Westpac’s head of New Zealand strategy.

Currencies of New Zealand, Canada and Norway are driven by aggressive central bank expectations, Speizer said.

The dollar’s rise came at the expense of the euro and the Canadian dollar. The euro lost 0.2% to the dollar as euro zone yields fell on new dovish signals from the European Central Bank. At $1.222 the euro is still up sharply from March and back to mid-January levels.

The U.S. dollar appreciated to 1.21 Canadian dollars from 1.206 on Tuesday.

China’s onshore and offshore yuan strengthened to three-year highs versus the dollar. The onshore currency broke through 6.40 – a key psychological level – to trade at 6.39 CNY=CFXS.

A day earlier, China’s major state-owned banks had bought dollars at that level in a move viewed as an attempt to cool the rally, sources said.

Cryptocurrencies bitcoin and ether were up about 2% and steady after a volatile weekend.

Iran has banned the energy-intensive mining of cryptocurrencies such as bitcoin for nearly four months, as the country faces major power blackouts in many cities.

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