Dollar at Almost 10-Year High on Diverging Policy; Kiwi Slumps

A gauge of the dollar approached a 10-year high on speculation the U.S. is moving toward raising interest rates as policy makers in Europe and Japan meet to discuss further measures to bolster their stagnant economies.

New Zealand’s dollar plunged toward a more than two-year low after consumer prices fell. The U.S. currency climbed for a third day versus the yen as the Japanese central bank considers expanded monetary easing at a policy meeting ending tomorrow. The euro was at almost the lowest level in 11 years before the European Central Bank meets this week amid bets it will announce sovereign-bond buying under quantitative easing. The Swiss franc gained.

“It’s difficult to pinpoint a specific catalyst today for what is proving to be a raging dollar-positive session, but it does fit the broader themes,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said by phone. “Expectations are obviously coalescing around a big ECB sovereign QE program, which is also adding to the dollar-positive mix.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, climbed 0.5 percent to 1,145.70 as of 5 p.m. New York time. It closed at 1,147.54 on Jan. 8, the highest in data going back to 2004.

The dollar appreciated 1.1 percent to 118.82 yen. It climbed 0.5 percent to $ 1.1550 per euro after rising to $ 1.1460 on Jan. 16, the strongest level since November 2003. The shared currency gained 0.6 percent to 137.24 yen.

Kiwi Sinks

New Zealand’s dollar extended losses after a consumer-price index declined 0.2 percent in the fourth quarter. Australia & New Zealand Banking Group Ltd. earlier cut its milk-payout forecast for Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter.

The kiwi slid 1.9 percent to 76.38 U.S. cents, approaching its lowest since June 2012.

Brazil’s real was the biggest gainer of the dollar’s 31 major peers, climbing 1.5 percent as the government announced tax increases.

The franc advanced amid fallout from the Swiss National Bank’s Jan. 15 decision to remove it’s currency cap. The franc strengthened 0.5 percent versus the dollar and 0.9 percent to 1.01146 per euro after weakening 2.6 percent yesterday. It appreciated to a record 85.17 centimes per euro on Jan. 15.

Canada’s dollar fell as factory sales dropped faster than economists predicted in November. The currency slumped as much as 1.5 percent to C$ 1.2115, the least since April 2009, before closing at C$ 1.2113.

Haven Assets

The yen weakened against most of its major peers as a report showed China’s economy grew faster than analysts estimated, damping haven demand.

China’s gross domestic product rose 7.3 percent in the three months ended December from a year earlier, the statistics bureau said in Beijing, beating the median estimate of 7.2 percent in a Bloomberg News survey.

“The GDP figures from China were better than expected, so I think that’s been positive for risk sentiment,” said Sireen Harajli, a Mizuho Bank Ltd. strategist in New York. “The dollar will continue to strengthen versus the euro and versus the yen as we move into the new year” on central-bank policy divergence.

Demand for the euro was limited before the ECB sets monetary policy on Jan. 22. The central bank will announce a 550 billion-euro ($ 636 billion) bond-purchase program this week, according to 93 percent of respondents in a Bloomberg survey of economists. That would top the 500 billion euros in models presented to ECB officials this month.

U.S. Outperforms

The dollar gained after the International Monetary Fund upgraded its forecast for the U.S. even as it made the steepest cut to its global-growth outlook in three years yesterday. The world economy will grow 3.5 percent in 2015, down from the 3.8 percent pace projected in October, the IMF said, as it reduced 2015 estimates for the euro area and Japan. The IMF raised its U.S. forecast to 3.6 percent expansion in 2015, from 3.1 percent.

“The U.S. economy, despite some of the macro headwinds, will likely continue to outpace most of the rest of the industrialized world,” Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange Inc. in Washington, said by phone. “A continuation of the theme of diverging monetary policy and diverging growth outlooks.”

The chance of a Fed interest-rate increase by policy makers’ December meeting was at 68 percent, futures data show.

The dollar has gained 7.6 percent in the last three months among 10 top currencies tracked by Bloomberg Correlation-Weighted Indexes, the most after the franc’s 18 percent jump. The yen fell 4.2 percent and the euro declined 3.3 percent.

To contact the reporter on this story: Rachel Evans in New York at [email protected]

To contact the editors responsible for this story: Dave Liedtka at [email protected] Kenneth Pringle, Paul Cox

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