Monday, August 9, 2010

Dollar advance strengthen against the yen

The dollar traded near the weakest in eight months against the yen on speculation a report will show the U.S. lost jobs for a second month, spurring the Federal Reserve to take additional steps to keep borrowing costs low.

The dollar may advance against the yen and strengthen versus Australia and New Zealand’s currencies because the U.S. Federal Reserve is unlikely to change its monetary policy tomorrow, Barclays Plc said. The dollar index (DXY 80.53, +0.12, +0.15%) , a measure of the greenback against a trade-weighted index of major rivals, drifted higher to 80.492 from 80.406 in North American trade. The index and the dollar slipped Friday after July U.S. jobs data proved weaker than expected.

"There's certainly a lot of negativity priced into the U.S. dollar lately based on the outlook for the U.S. economy," said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. "The fall in U.S. yields can to some extent be pinned on the expectation that the Fed is prepared to do more quantitative easing."

The Federal Reserve may offer more cautionary language on the growth outlook, but probably won't move this month to buy more bonds in an effort to ward off a double-dip recession, economists said.

A reversal in yields should push the Aussie dollar and kiwi dollar lower against the U.S. currency, Subbarao wrote. “However, we fell the best way to position for this would be through dollar/yen, which has historically shown a high degree of correlation with short-term interest rates.”