NEW YORK/LONDON—The dollar rose on Aug. 16 against commodity currencies such as the Australian and Canadian dollars, while the safe-haven yen gained at a time of disappointing economic data from China, political tension in Afghanistan, and the spreading Delta virus weighing on risk appetite.
The dollar’s gains came after recent losses from a slump in consumer sentiment on Friday, Aug. 13, that weakened the U.S. unit.
Against a basket of six major currencies, the greenback was little changed to slightly higher at 92.593, after it fell to a one-week low of 92.468 on Friday. Its gains were most pronounced against commodity currencies.
The Aussie dollar was down 0.7 percent at $0.7323, while the New Zealand dollar fell 0.3 percent to $0.7040 ahead of a Reserve Bank of New Zealand’s policy meeting on Aug. 11, at which economists widely expected the first hike in the benchmark interest rate since 2014.
The greenback, meanwhile, rose 0.4 percent against the Canadian dollar to C$1.2565.
“The spreading virus, the disappointing Chinese data, and the news that the Taliban have captured Kabul have dampened risk appetite,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
But currencies stuck to broad trading ranges as investors were wary of taking large bets at the start of a busy week for central banks.
China’s July retail sales, industrial production, and fixed asset investment were all weaker than expected as the latest COVID-19 outbreak weighed on the world’s second-biggest economy.
Long positions on the greenback swelled to their biggest levels since March 2020, suggesting the dollar’s recent drop was more a temporary setback than the beginning of a structural downtrend.
The release of the U.S. Federal Reserve (Fed) meeting minutes this week will be key to the short-term outlook for the greenback, especially if it confirms more policymakers are leaning towards tapering its bond-purchase plan by the end of the year.
MUFG strategists noted there had been a clear pattern for the U.S. dollar to strengthen modestly after the release of Fed minutes, but there is the risk of a bigger market reaction when Fed’s policy is moving closer to a pivot point.
“It poses the main event risk of disrupting the quiet period of trading we have seen over the summer,” they said.
Political unrest in Afghanistan in which Taliban insurgents took over Kabul over the weekend also undermined market sentiment.
Currency market volatility, even by its already low levels, is nearing 2021 lows thanks to the summer lull.
Elsewhere, minutes from the Reserve Bank of Australia’s latest meeting are due on Aug. 17.
In cryptocurrencies, bitcoin edged higher to around $47,162, approaching the three-month high of $48,190 marked over the weekend.
By Gertrude Chavez-Dreyfuss and Saikat Chatterjee