Dollar Advances as OPEC Output Freeze Seen Hurting Euro, Aussie

By Anchalee Worrachate and Kevin Buckland  

The dollar strengthened on speculation lower crude prices after OPEC’s decision to keep oil output unchanged will stimulate the U.S. economy while weighing on the euro and currencies of commodity-producing nations.
The greenback rose against most of its 16 major peers. The Aussie declined with the Norwegian krone and Canadian dollar after the 12-nation Organization of Petroleum Exporting Countries kept its output target at 30 million barrels a day even after the steepest slump in oil prices since the global recession. Japan’s yen fell against its U.S. counterpart for the first time in four days after a government report showed household spending dropped and inflation slowed.
“The falling oil price is making the dollar a more attractive alternative to currencies from oil-producing countries,” said Peter Kinsella, a senior foreign-exchange strategist at Commerzbank AG in London. “While lower oil prices may boost consumer spending in the U.S., it is
likely to translate into weaker inflation in the euro area, and therefore an easier monetary policy.”
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 trading partners, rose 0.2 percent to 1,102.80 at 6:52 a.m. New York time, headed for its highest close since March 2009. the index is headed for a fifth monthly gain, the longest streak since March 2013.
The dollar climbed 0.5 percent to 118.26 yen after advancing to 118.98 on Nov. 20, the strongest level since August 2007. It was little changed at $1.2477 per euro after strengthening 0.3 percent to $1.2429 earlier. The yen depreciated 0.6 percent to 147.58 per euro.

Fed Policy

The U.S. currency’s gains build on this month’s advance as a brightening economic outlook boosts speculation the Federal Reserve is moving closer to raising borrowing costs. The dollar gained 3 percent in the past month, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen slumped 6.7 percent.
Europe’s 18-nation shared currency headed for a fifth monthly decline against the dollar after a report showed inflation in the region slowed to 0.3 percent in November, matching a five-year low.
“Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate,” European Central Bank President Mario Draghi said yesterday, when the euro weakened 0.3 percent. The ECB is already purchasing covered bonds and asset-backed securities, as well as offering targeted long-term loans.

Commodity Currencies

“The U.S. dollar remains strong,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland, adding that sentiment toward the yen remains bearish. “The data coming out of the euro zone continues to be weak, and points to more quantitative easing from the ECB.”
Commodity currencies declined after OPEC took no action yesterday to ease a global oil-supply glut amid crude’s tumble into a bear market this year.
Australia’s dollar slipped 0.4 percent to 85.15 U.S. cents, the Norwegian krone weakened 0.6 percent to 6.9696 per dollar and touched a five-year low, and Canada’s dollar fell 0.4 percent to C$1.1379 versus the U.S. currency.
Japanese household spending fell 4 percent in October from a year earlier, the statistics bureau said in Tokyo, following a 5.6 percent decline the previous month. Consumer prices excluding fresh food increased 2.9 percent in October from a year earlier, slowing for a third month, the statistics bureau said today in Tokyo.

Negative Yields

The Bank of Japan unexpectedly raised its annual target for enlarging the monetary base to 80 trillion yen last month, from 60 to 70 trillion yen, to help meet its 2 percent inflation target. Japan’s two-year rate fell as low as minus 0.005 percent today and 10-year yields dropped to 0.415 percent, the least since April 2013.
Japan’s currency may drop to as weak as 130 per dollar by the end of next year, driven by the monetary-policy divergence between Japan and the U.S., Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo, wrote today in a note to clients.