Dollar heads for worst quarter in 5 years on rate hike doubts

LONDON - Reuters

REUTERS photo

The dollar fell broadly on March 30 and with just one more day left in March headed for its worst quarter in five years against a basket of currencies, as investors wound back their expectations for U.S. interest rate rises in 2016.

The Australian and New Zealand dollars, currencies that are closely correlated with commodity prices, both soared to nine-month highs as oil prices - which are U.S. dollar-denominated - rose and became cheaper for holders of other currencies.

The greenback had hit a two-week high against a basket of major currencies at the start of the week, boosted by a series of hawkish comments from Fed officials that gave investors the impression that U.S. interest rates could increase twice this year, with the first hike coming as soon as April.

But Fed Chair Janet Yellen poured cold water on those expectations on March 29, stressing the need to be cautious in raising rates and highlighting external risks including low oil prices and slower growth abroad.

That sent the dollar index down by 0.8 percent on March 29 - its biggest one-day fall in two weeks. On Wednesday the index was another 0.3 percent weaker, and for the quarter was on track for an almost 4 percent fall.

“She (Yellen) seemed very biased towards the dovish side and the market is taking that as a signal that the Fed is maybe trying to engineer a weaker currency or a more buoyant financial market, or possibly both,” Altana Hard Currency Fund manager Ian Gunner said in London.

The greenback dipped around half a percent to a nine-day low of 112.135 yen, even as dismal Japanese data heightened speculation that Japan will need to muster more stimulus to avert another recession. Factory output fell 6.2 percent last month from the previous month, the biggest tumble since 2011.

The dollar also lost ground on the euro, which hit an almost-two-week high of $1.1333.