Investors Leave Dollar, Seeking Higher Yields
The dollar is weaker against most rival currencies Tuesday afternoon in New York, after aggressive statements from the Reserve Bank of Australia highlighted the greenback's yield disadvantage with other major currencies.
Tuesday afternoon, the euro was at $1.4744 from $1.4659 Monday, while the dollar traded at 107.80 yen from 108.20 yen. The British pound lost some ground against the buck, trading at $1.9484 from $1.9525. The dollar was at 1.0948 Swiss francs from 1.1025 francs.
In yet more strong language from the central bank since it hiked rates to 7.0% earlier this month, the RBA revealed in the minutes from its February meeting it had considered raising the cash rate even higher. Australia is battling higher inflation amid continued-high global prices for commodities, a key driver of its economy.
The RBA statements boosted expectations of more rate hikes in Australia, while other places such as the euro zone have also suggested rate hikes remain a possibility. This comes as the Federal Reserve, in an effort to keep the U.S. economy on track, is likely to continue cutting its benchmark rate, which currently stands at 3.0%.
The relatively low rate has led many investors to sell the dollar and look elsewhere for currencies that pay higher interest rates.
"Despite ongoing, if not rising, fears that the U.S. will/has fallen into recession, commodity markets are taking little notice, keeping the dollar under broad-based downward pressure," said Tom Levinson, currency strategist at ING Wholesale Banking in London.
The dollar fell to its weakest level against the Australian dollar in three months Tuesday, and declined to a two-week low against the euro. The greenback is also trading low versus the yen, the pound and the Swiss franc.
There is no important U.S. data out Tuesday. The NAHB housing market index for February, unveiled at 1 p.m. EST, came in slightly better than expected. Minneapolis Federal Reserve Bank President Gary Stern spoke at 9 a.m. EST, but the dollar showed little reaction to his comments. Mr. Stern said the U.S. economy may face slower growth and rising unemployment.
Meanwhile, the dollar is also lower against the yen as Japan's currency benefits from expectations of more interest rate hikes in China. China's inflation rate rose to an 11-year high in January, according to a report Tuesday, fueling speculation that the People's Bank of China may soon need to lift its benchmark interest rate to stem price pressures.
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