The US dollar performed had a great last week and posted gains against several major world currencies. This strength comes from rising US Treasury yields along with expectations of rate increases from the US Federal Reserve later in the year. There is also an increased demand for higher risk assets, which has helped support the US dollar as investors are more reassured as geopolitical tensions ease.
This week, the US Dollar Index futures for June settled at 90.075 which is an increase of 0.64%. Federal Reserve officials had announced earlier that there would be more interest rate increases in 2018 due to steady growth rates in the country. The Fed Reserve will be forced to raise interest rates to prevent the economy from overheating.
The US dollar's performance against foreign currencies has been pretty impressive. First, there is its performance against the Japanese yen. The dollar went to its highest level since February last week where the exchange of USD/JPY settled down at 107.623. This was an increase of 0.290 or around +0.27%.
This increase is because of the widening spread between U.S. Government Bonds and Japanese Government Bonds (JGBs). This made investing US dollars an attractive idea and investors finally went past the ‘Trump Risk’ factor which is the current uncertainty about US President Trump's policies.
In addition, the Japanese yen did not respond as much to the US-Japan summit. Trump and Japanese Prime Minister Shinzo Abe agreed to increase trade consultations between the two countries.
AUD and NZD Take A Hit
The two other major currencies that the US dollar performed well against were the Australian and New Zealand dollar. This came as a bit of a surprise since both currencies were initially driven higher by increasing commodity prices. However, increasing US interest rates hit their performance hard coupled with the one-two punch of the economic data coming out from China showing weaker performance and a drop in Chinese stocks. The AUD/USD dropped to 0.7669, which is a decrease of 1.16% while the NZD/USD finished at 0.7205, a 1.99% decrease.
The AUD got no help as the Australia's Reserve Bank revealed that it was in no hurry to raise rates in its Policy Minutes. The Employment Change report in Australia also showed slower hiring rates which also contributed to the weak AUD. The US dollar is expected to continue to strengthen this week as well.
The US Fed Reserve confirmed that their projected rate increases are set to happen three times this year based on the latest data predictions from the Central Bank.