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Dollar inches toward one-year high ahead of payrolls report

payrolls report

The U.S. dollar index gained 0.13% to 93.957, moving back toward Thursday’s peak at 94.504, its highest since late September 2020

The U.S. dollar inched back toward a one-year high compared with major peers on Tuesday ahead of a key payrolls report at the end of the week that could boost the case for the Federal Reserve to start tapering stimulus as soon as next month.

The greenback was also supported by an equity sell-off that spread from Wall Street to Asia.

The risk-sensitive Australian dollar was among the biggest decliners, with the Reserve Bank of Australia (RBA) reiterating it doesn’t expect to raise interest rates until 2024 after keeping policy steady.

The U.S. dollar index gained 0.13% to 93.957, moving back toward Thursday’s peak at 94.504, its highest since late September 2020.

The index had rallied 2.8% since Sept. 3 as traders rushed to price in tapering this year and possible rate rises for 2022.

The dollar has also benefited from haven demand amid worries spanning the risk of global stagflation to the U.S. debt ceiling standoff.

The dollar started the week on the back foot yesterday, failing to rise on yet another equity sell-off, and suffering from the OPEC+ decision to stick to gradual supply hikes (400k barrels/day) which sent oil prices and oil-sensitive currencies higher, ING strategists said in a note.

As highlighted in yesterday’s FX Daily, we think markets will keep buying the dips in the dollar, and this is what appears to have happened overnight, as the greenback rebounded across the board, they wrote.

Friday’s non-farm payrolls data is expected to show continued improvement in the labour market, with a forecast for 488,000 jobs to have been added in September, according to a Reuters poll.

Meanwhile, an index of Asia-Pacific equities slipped 0.92%, following a 1.3% tumble overnight for the S&P 500.

The Aussie declined 0.34% to $0.7263, retreating further from Monday’s four-day high of $0.73045.

The New Zealand dollar shed 0.34% to $0.6939, also backing away from a four-day peak at $0.6981. The Reserve Bank of New Zealand (RBNZ) decides policy on Wednesday, with markets priced for a quarter point rate hike.

The RBA’s firm on‑hold stance is a weight on AUD, Commonwealth Bank of Australia strategist Joseph Capurso wrote in a report.

For the RBNZ, with markets already pricing a rate hike cycle, the likelihood of material NZD upside is low, he said.

The dollar added 0.25% to 111.19 yen, while the euro slid 0.21% to $1.15965. Sterling traded flat at $1.3612.

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