US dollar extends best streak since march on Fed speculation, China

[NEW YORK] The US dollar climbed for a fifth day, the longest streak of gains since March, on speculation the Federal Reserve is still on course to raise interest rates this year, even amid signs of slowing growth in the labor market.

The US currency appreciated against those of commodity exporters, led by the South African rand, after trade data in China showed disappointment in exports and imports persisted.

The US dollar rallied versus the yen as traders are still assigning close to a 50 per cent chance of at least one Fed interest-rate increase in 2016 even after a report May 6 showed April jobs gains trailed forecast.

"We're expecting a bit of dollar rebound," said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London.

"The baseline for the Fed is still for two hikes. We've had some negative prints off the China data, that's weighing on the commodity currencies."

The greenback has pared its 2016 decline on signs the move had become overdone and as policy makers including New York Fed President William Dudley restate plans to raise rates. The US dollar has rallied during the month of May for nine of the past 10 years.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, gained 0.5 per cent as of 12:03 pm in New York, after climbing 1.5 per cent last week, the most since Nov 6. The US currency rose 1.2 per cent to 108.39 yen, touching the highest since April 27.

Futures Positions

Hedge funds' bullishyen bets held near their April peak, which was the highest in data going back to 1992, according to the most recent figures from the Commodity Futures Trading Commission in Washington. At the same time, speculators extended so-called net-short positions on the US dollar versus eight major currencies to the most since April 2014.

"There was a very considerable build-up in dollar short positioning" sparked by dovish Fed meetings in March and April, and that "may have proved too much," said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark.

"People were trading that catalyst," but "at some point, you just run out of energy for that move," Mr Hardy said.

"The key sign of that is the reaction like you saw on Friday - when you have a not-so-great US jobs report and yet the dollar is quite stable after a week of relative strength."

BLOOMBERG