Thursday, January 28, 2016

FOREX-Dollar down as weak U.S. data suggests Fed won't tighten aggressively

The dollar hit a one-week low against the euro on Thursday as a plunge in U.S. durable goods orders supported the view of a U.S. economic slowdown on softer global demand.

The much weaker-than-expected reading in durable goods orders, which plunged 5.1 percent last month, raised the prospects of a lower U.S. gross domestic product number on Friday.

A possible fall in U.S. GDP combined with global equity market volatility and slumping oil prices that have plagued investors so far in 2016 would greatly reduce the likelihood that the Federal Reserve would raise interest rates aggressively this year.

That possibility of the Fed holding rates steady pushed markets into higher-yielding currencies like the Australian, Canadian and New Zealand dollars, which all gained notably.

Economists polled by Reuters had anticipated only a 0.6 percent drop in durable goods.

"This is a terrible number, in my opinion," said Fabian Eliasson, vice president for currency sales at Mizuho Corporate Bank in New York. "Couple that in with retail sales over the holiday - they didn't knock it out of the park – and it's quite possible that the Q4 GDP is going to disappoint."

The euro EUR=[1] touched its highest since Jan. 20 against the dollar. It was last up 0.45 percent at $1.0940.

"Markets seem to be grappling with the fact that (the Fed is) not going to be tightening aggressively," said Jonathan Lewis, founding principal of Samson Capital Advisors in New York. "If the Fed is most likely to hold off or not tighten aggressively, then we can begin to think about moving from risk-off to risk-on (trading)."

In risk-on trading, investors prefer such currencies as the Aussie, loonie and kiwi, which boast high interest rates but are also largely tied to commodities, making them more prone to large-scale falls in value.

Commodities, especially oil, rebounded on Thursday. U.S. crude futures CLc1 rose 2.5 percent to $33.25 a barrel. The Australian dollar AUD=D4[2] set a three-week high against the U.S. dollar. It was last up 0.9 percent at US$0.7090.

The U.S. dollar fell against the Canadian dollar CAD=[3], dropping below C$1.40 for the first time in three weeks. It was last down 0.2 percent at C$1.4076.

The kiwi NZD=[4] rose more than 1 percent against the dollar, and was last up 0.6 percent to $0.6469.

(Reporting by Dion R abouin; Editing by Lisa Von Ahn)


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