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Tokyo - The dollar weakened, with its biggest losses against the currencies of commodity-producing countries, as futures showed a slim chance that the Federal Reserve will raise interest rates this month.
A gauge of commodities prices that lost 1% on Monday was little changed on Tuesday, supporting currencies of countries like Australia that ship raw materials abroad.
Chinese stock markets rebounded, even as the nation reported that exports declined in August. That helped push a measure of foreign-exchange volatility to its highest level in almost seven months.
Futures traders have pared odds that the Fed will raise rates next week to 30%, from 38% at the end of last month.
“The market is preparing for no rate hike, and then for something later on,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt.
“My best guess for this week is high volatility, especially in the form of jumps. You don’t have to have a view on direction if you are certain enough on the view of volatility. That’s the way to go -- not playing directional bets but playing option bets.”
The US currency fell for a second day against Australia’s dollar after a survey released Tuesday by National Australia Bank showed business conditions in August were the strongest in 10 months.
The Aussie rose 0.8% to 69.82 US cents as of 11:00 London time, extending Monday’s 0.2% advance. New Zealand’s dollar climbed 0.5% to 62.87c. South Africa’s rand strengthened 0.5% to 13.8970 per dollar, having touched 14.0682 on August 24, the weakest level on record.
The US currency fell 0.7% to $1.5378 to the pound, for a second day of declines. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, was set for its first decline in five days.
JPMorgan Chase’s global foreign-exchange volatility index reached 11.30%, matching the highest since February, and up from 8.78% in July.
“The market is somewhat divided on whether we’ll see a rate hike in September; it’s definitely not pricing for a move,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group.
“This is where we could get a surprise if the Fed did decide to hike rates in September, which would be dollar-positive.”
RBNZ easing
The Reserve Bank of New Zealand will cut its official cash rate by 25 basis points to 2.75% when it meets this week, a Bloomberg survey indicates.
The stock-market rout triggered by China’s shock devaluation of its currency in August helped prompt futures traders to pare odds that the Fed will raise interest rates in September.
China’s yuan devaluation on August 11 led to global equity losses of more than $8trn. The Shanghai Composite Index of shares rose 2.9% on Tuesday, erasing a 2.5% loss the previous day.
“Investors are waiting for more data from China and a decision from the Fed to determine what to do with the cash they have from selling assets recently, or to cover losses from the recent market selloff,” said Masafumi Yamamoto, a senior strategist at Monex in Tokyo.
