Date
6 December 2016
The US dollar could test the 200-day moving average of 107.5 against the yen on the back of strong economic data and rate hike expectations. Photo: Reuters
The US dollar could test the 200-day moving average of 107.5 against the yen on the back of strong economic data and rate hike expectations. Photo: Reuters

US dollar stays strong amid solid data, rate hike expectations

Upbeat US manufacturing data and the latest remarks by a Federal Reserve official have increased the chances for a rate hike before the year ends.

The US dollar index soared to 98.85 on Monday, extending the gain to 3.6 percent this month.

The manufacturing purchasing managers’ index rose to 53.2 in October, the highest since October last year.

The Fed is likely to raise short-term interest rates by three quarter-point moves between now and the end of 2017, Chicago Fed president Charles Evans said on Monday, adding that the US central bank should link the pace of future rate hikes to inflation expectations and the job market.

Earlier, both San Francisco Fed president John Williams and New York Fed president William Dudley indicated an imminent rate hike.

The greenback surged to nearly 104.5 against the Japanese yen on Tuesday, and there are signs it would reverse the downtrend that began in late May.

First resistance is at around 105 while the 200-day moving average of 107.5 would be the next resistance.

After the recent plunge, the pound sterling was locked in a narrow range last week. Technically, it could stage a decent rebound to as high as 1.263 against the US dollar.

Nevertheless, concerns about a hard Brexit and fears that European Union would take a tough stance in the upcoming negotiations will continue to weigh on the currency.

Meanwhile, the market is awaiting third-quarter economic data from the UK, which will be released on Thursday.

Growth is expected to more than halve from 0.7 percent in the second quarter to 0.3 percent in the three months to September.

New Zealand’s central bank said on Tuesday its monetary policy statements will now include projections for the official cash rate as opposed to the 90-day bank bill rate. Analysts said the change will help make the policy outlook clearer.

Cash rate projection is “a more transparent way of presenting the expected policy actions needed to achieve its inflation target”, the Reserve Bank of New Zealand said in a statement.

The New Zealand dollar has broken the uptrend seen over past few months, thus technically pointing to further losses against the US dollar.

The kiwi-US dollar rate may slip to 0.70, or even 0.68.

The Bank of Canada said on Monday it decided to stick to the bank’s inflation target of 2 percent.

To better measure inflation, the central bank will now look at three new metrics: CPI-common, CPI-trim, and CPI-median.

Chart-wise, the US dollar is already overbought, but it could continue to strengthen against the Canadian dollar before any notable adjustment.

Resistance levels to watch are 1.3570 and 1.3835, while 1.3220 and 1.30 are supports.

This article appeared in the Hong Kong Economic Journal on Oct. 26.

Translation by Julie Zhu

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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