Dollar extends gains as Fed’s Fischer adds to hawkish voices

Markets were quiet on the first trading day of the week as the summer holiday and a very light calendar kept traders away. The main driver of currency markets on Monday were comments from Fed Vice Chairman Stanley Fischer, which triggered a fresh rally in the dollar.

Speaking at a conference in Colorado on Sunday, Fischer said the Fed is getting close to hitting its targets for full employment and 2% inflation. He added that although jobs growth has slowed this year compared to last year, the labor market continues to improve and when excluding for energy prices, inflation was “within hailing distance” of the Fed’s objective.

Fischer’s views were in line with similar hawkish remarks recently from other Fed officials, which have reinforced expectations that US rates may go up before the end of the year. The dollar extended its gains for second day, with the dollar index rising by 0.4% in late Asian session to 94.88.

Against the yen, the greenback opened with a gap up in Asian trading and moved closer to the 101 yen level but its attempts were halted at 100.93 as it then started to pull back to ease around 100.70 yen.

The yen fell against most major currencies on Monday as it was dragged lower by comments from Bank of Japan Governor Haruhiko Kuroda. In an interview with a Japanese newspaper on Saturday, Kuroda fuelled speculation that the Bank of Japan may cut rates deeper into negative territory, saying “there is definitely room for a further cut”.

In other Asian currencies, the aussie and the kiwi were both down on Monday as the prospect of higher US interest rates weighed on commodity-linked currencies. The Australian dollar was down 0.3% against its US counterpart at just below 0.76, while the New Zealand dollar fell by a steeper 0.6% at 0.7233.

The Canadian dollar was also sharply down for a second day as crude oil prices moved away from Friday’s 2-month highs. Weaker-than-expected Canadian inflation and retail sales figures out on Friday further pressured the loonie today. The greenback was last up at 1.2918 versus the loonie.

Crude oil prices were down nearly 2% in Asian trading today as investors started to doubt the sustainability of the current rally even if some deal was struck between major oil producers at a meeting in September. WTI oil futures were back below $49 at $48.33 a barrel, while Brent crude was trading just below $50.

Gold prices also headed lower on Monday, falling to a two-week low of $1331.59 an ounce as fresh Fed rate hike talk drove down the yellow metal.

In European currencies, the euro extended Friday’s losses as the dollar rebounded. The single currency dropped below the 1.13 level and was last trading at 1.1277 dollars. However, the pound was slightly firmer at 1.3070 dollars as it was supported by increasing evidence of only a limited fallout from the Brexit vote.

The rest of the day is looking extremely quiet with no major data expected. Traders will instead look to tomorrow’s flash PMI data for the Eurozone and the US.