Dollar climbs on higher rate expectations, Aussie slides on jobs shock

Dollar advanced on Thursday after strong U.S. retail sales data underpinned the resilience of the world's largest economy, cementing that the Federal Reserve has further to go in tightening rates.


As the stock markets soared, so did the forex reserves, reaching a record high of $579.346 billion by December.

By Rae Wee

SINGAPORE (Reuters) - The dollar advanced on Thursday after strong U.S. retail sales data underpinned the resilience of the world's largest economy, cementing the case that the Federal Reserve still has further to go in tightening rates.

Elsewhere, the Australian dollar slid after data on Thursday showed that employment surprised in January by falling for a second straight month, while the jobless rate jumped to its highest since last May.

The Aussie, which was marginally higher on the day prior to the data release, fell more than 0.5% to an intra-day low of $0.6868 in the aftermath, and last bought $0.6872.

"The readings for January have really undershot market expectations," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"Overall, some weakness indicated by the report ... probably caused markets to pare back some of the interest rate rises pencilled in for the RBA rate hikes."

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Meanwhile, U.S. retail sales rebounded sharply in January after two straight monthly declines, driven by purchases of motor vehicles and other goods, the U.S. Commerce Department said on Wednesday.

The greenback surged on the back of the data release and clung to most of those gains on Thursday, with the U.S. dollar index last 0.07% higher at 103.87, after hitting a near six-week top of 104.11 in the previous session.

The euro was little changed at $1.0687, while the kiwi slid 0.28% to $0.6263.

"The U.S. economy continues to operate well. There's very strong labour market data coming through, and the consumers are well supported," said Jarrod Kerr, chief economist at Kiwibank. "We do think the Fed's got a little bit more work to do."

The retail sales data came just a day after U.S. figures showed inflation slowing but still sticky.

Markets are now expecting U.S. rates to peak above 5.2% by July.

In other currencies, sterling fell 0.19% to $1.2015, after sliding more than 1% in the previous session.

British inflation slowed more than expected in January and there were signs of cooling price pressure in parts of the economy watched closely by the Bank of England, data released on Wednesday showed.

This added to signs that further hefty BoE interest rate hikes are unlikely.

"It's still a very high number. The good news is that inflation is likely peaking, or has peaked. So the outlook for UK's inflation is improving," said Kiwibank's Kerr.

The yen rose marginally to 134.07 per dollar, having drawn some support after the nomination of Kazuo Ueda as the next central bank governor raised market hopes that the 71-year-old could end super-low interest rates in Japan sooner than initially expected.

"The Bank of Japan looks set to change its ultra-loose policy as inflation takes root," said analysts at BlackRock Investment Institute.

"We think the wage and inflation dynamics at play mean the current policy stance has likely run its course."


(Reporting by Rae Wee; Editing by Sam Holmes)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Feb 16 2023 | 9:42 AM IST

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