Fed rate rise view underpins dollar as Aussie falls on RBA

[TOKYO] The dollar rose to the highest in three months as the prospect of the Federal Reserve raising interest rates this year underscored demand for the currency.

A broad gauge of the greenback reached its strongest level since April. The US currency gained the most among 10 developed-nation peers over the past month, Bloomberg Correlation-Weighted Indexes show. Australia's dollar fell after the central bank said growth probably slowed last quarter and the currency can be expected to decline further. New Zealand's dollar climbed for a third day after reaching a six-year low last week.

"The expectation is that sooner or later, the Fed will be hiking before the other major central banks," said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. "Gradual dollar strength is taking place and that trend will continue." The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its major peers, was at 1,210.57 as of 11.31 am in Tokyo, after reaching 1,211.26.

Australia's dollar fell as much as 0.2 per cent to 73.58 US cents, after touching 73.28 on Monday, the lowest since 2009.

The yen slumped to a one-month low after minutes were released Tuesday from the Bank of Japan's policy board meeting last month. The notes showed some members expect the nation's recovery to slow temporarily in the second quarter. The currency slipped 0.1 per cent to 124.33 against the dollar, after reaching 124.39, the weakest since June 17.

The euro was little changed at US$1.0823, after falling to a three-month low of US$1.0809 on Monday.

In an interview on Fox Business Network on Monday, St. Louis Fed President James Bullard said there's a more than 50-50 chance the central bank will raise interest rates in September.

"A further dollar climb will push back expectations for rate hikes so this dollar-led move won't likely last forever," said Junya Tanase, chief foreign-exchange strategist at JPMorgan Chase & Co. in Tokyo.

New Zealand's dollar climbed 0.6 per cent to 66.04 US cents after Interest.co.nz reported that Finance Minister Bill English said dairy prices may recover at the end of 2015. The kiwi has declined 13 per cent over the past three months, according to Bloomberg Correlation-Weighted Indexes, the most among 10 developed-nation peers.

BLOOMBERG