US dollar extends gains on rate hike hopes

[TOKYO] The US dollar extended its gains in Asia on Monday on the back of comments from Federal Reserve boss Janet Yellen that bolstered speculation that a US rate hike was drawing closer.

America's top central banker said Friday that activity in the powerhouse economy appeared set to accelerate and the labour market would continue to strengthen, and added that increase in interest rates would likely happen "in the coming months." "The message from the Fed remains that a rate hike is getting closer," said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors.

On Monday, the dollar rose to 110.95 yen from 110.37 Friday in New York, while the euro weakened to US$1.1103 from US$1.1113.

The European single currency rose to 123.19 yen from 122.65 yen.

The greenback was also broadly higher against a basket of emerging market units including the Malaysian ringgit, Indonesian rupiah, Thai baht and Philippine peso.

The South Korean won dropped one per cent against the dollar.

A US rate hike would tend to boost the greenback against other currencies as investors flock to dollar-denominated assets.

As a Fed rate move draws closer, China's central bank on Monday set the value of its yuan currency at a more than five-year low against the dollar.

The People's Bank of China put the yuan at 6.5784 to US$1.0, down 0.45 per cent from its fix on Friday, according to data from the China Foreign Exchange Trade System. The level was the lowest level since February 2011.

"The yuan will depreciate gradually," Song Yu, China economist for Goldman Sachs/Gao Hua Securities, told Bloomberg News. "The main driver for the decline would be a stronger dollar on the back of the expectation that the Fed will raise interest rates."

A Group of Seven summit in Japan wrapped up on Friday, with members reaffirming previous commitments not to intervene in foreign exchange markets, after Tokyo faced a backlash from its rich nation counterparts over threats to weaken the surging yen.

"The G7 joint statement may ultimately be significant less for what it says about fiscal policy and structural reform than for its language on exchange rate policy," Tobias Harris, a vice-president at Teneo Intelligence, said in a commentary.

"(Its) language suggests that Japan would pay an even steeper political cost for intervening in the foreign exchange markets to weaken the yen."

AFP