Dollar drops below year-long high as wage bill looms

A US dollar bank note is seen in this illustration taken May 26, 2020. REUTERS / Dado Ruvic / Illustration / File Photo

  • Traders await clues as to when the Fed will tighten
  • Aussie holds 3-day gain ahead of RBA meeting, no changes expected
  • New Zealand cenbank meets on Wednesday, markets valued at 25bp rise

TOKYO, Oct.5 (Reuters) – The US dollar fell below a year-long high against its major peers on Tuesday as traders awaited key US wage data at the end of the week for clues about the timing of a decline in Federal Reserve stimulus and the start of interest rate hikes.

The Australian dollar maintained a three-day gain, trading little at $ 0.72905 from the previous day, when it hit a four-day high at $ 0.73045. The Reserve Bank of Australia is meeting on Tuesday, with economists polled by Reuters not unanimously predicting no change in the key rate.

The New Zealand dollar held near the previous session’s four-day high of $ 0.6981, changing hands at $ 0.6960 after three days of gains. Markets are valued for a quarter point rate hike when the country’s central bank decides its policy on Wednesday.

The U.S. dollar index, which measures the currency against six rivals, was roughly stable at 93.845, down slightly from its high on Thursday at 94.504, its highest since late September 2020.

This follows a 2.8% rally since September 3, as traders rushed to assess the cut as early as next month and rates could rise next year, while the currency also benefited from safe haven demand amid worries about global stagflation risk to the deadlock on the US debt ceiling.

“There is a lot of bad news around the world related to the US dollar,” wrote Mark McCormick, global head of foreign exchange strategy at TD Securities, in a report. “The key for the markets in the coming weeks is to determine the extent of the risk premium already taken into account versus how these factors play out.”

“As the short-term dollar bias tends to increase, we are reluctant to continue moving at these levels,” McCormick said.

Friday’s non-farm payroll data is expected to show continued improvement in the labor market, with a forecast to create 488,000 jobs in September, according to a Reuters poll – enough to keep the Fed on track to start shrinking before the end of the year.

Elsewhere, the Canadian dollar traded near a nearly one-month high of C $ 1.2558 per greenback reached on Monday – down about 0.1% to C $ 1.2599 – supported by the rise of crude oil to a three-year high.

The British pound held close to a four-day high at $ 1.3640, last changing hands at $ 1.36005.

Reporting by Kevin Buckland Editing by Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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