Dollar approaches one-month high against yen

Sydney - The dollar rose to a one-month high versus the yen amid speculation an employment report Friday will add to firm economic data that have boosted the probability of a US rate increase this year.

The greenback advanced against the Japanese currency for a seventh day Wednesday, the longest stretch of gains since March, after US service companies expanded in September at the fastest rate in almost a year, driving Treasuries lower for a fourth day.

A measure of the dollar versus its major peers was heading for a three-week high after Chicago Fed President Charles Evans flagged Wednesday that one rate increase by year-end is likely if data continues to improve, while Richmond Fed President Jeffrey Lacker said he saw a case for raising rates.

“A good jobs number is all that it takes to push up the implied probability of a Fed hike in December over the 70% mark,” said  Chris Weston, chief markets strategist at IG in Melbourne, noting that the increased odds in the past week of a move this year have driven up Treasury yields.

 “A continued steepening in the US yield curve would mean the dollar will sustain its upside.”

The greenback advanced 0.1% to ¥103.58 at 08:28, poised for the highest close since September 2. It gained 0.3% to $1.2707 against the pound.

The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, added 0.1%, heading for the highest close since September 16. The yen is the worst performer this month in a basket of 31 major currencies, having dropped 2.2% against the greenback.

Increased odds

The market-implied probability of a hike by December rose to 62% from 51% at the start of last week, futures data compiled by Bloomberg show.

Non-farm payrolls data on Friday will show US employers added 172 000 jobs in September, compared with 151 000 in the previous month, according to a Bloomberg economist survey.

Crude oil prices, which closed at the highest level in more than three months on Wednesday, have increased investor appetite for riskier assets, despite bond yields rising on expectations of a rate increase, said Osamu Takashima, a Tokyo-based strategist at Citigroup.

Headed lower

“The dollar may rise near its recent high of around 104.30 against the yen, but I maintain a medium- to long-term view for its downtrend,” he said. The median forecasts in a Bloomberg survey are for the yen to be at ¥103/$ by the end of the year and ¥105 by the middle of 2017.

The Australian dollar fell 0.5% to 75.82 US cents. Data showed the nation’s trade deficit in August narrowed more-than-expected, while the figure for July was revised down.

“From a data perspective, Aussie should be trading stronger,” said Rodrigo Catril, a currency strategist at National Australia Bank in Sydney. “The trade balance was better than expected, but this was also helped along by a favourable revision to last month.

Maybe that has taken a bit off the gloss.”

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