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FOREX-Dollar heads for longest weekly losing streak in a decade

Fri, 14th Aug 2020 09:28

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

* Dollar supported as risk appetite wanes

* Dollar index heads for longest weekly losing streak since
2010

* Yen headed for worst week in two months after U.S. yields
jump

By Ritvik Carvalho

LONDON, Aug 14 (Reuters) - The dollar steadied on Friday as
a spike in U.S. bond yields and a drag on risk sentiment from
lacklustre Chinese economic data slowed a selldown of the U.S.
currency, which was headed for its longest weekly losing streak
since 2010.

China's retail sales unexpectedly extended their fall into a
seventh month in July and industrial output missed expectations
- suggesting bumps in even the world's most promising rebound.

The mood had the dollar within reach of snapping a
seven-week losing streak against the risk-sensitive Aussie
, which settled around $0.7149, flat for the week.

Tepid demand in a long-dated U.S. government bond auction on
Thursday also extended a surge in Treasury yields that has drawn
some investors - especially from Japan - back to dollars.

"Mixed tone across FX markets at the end of the week as
investors lack a clear directional catalyst in these quiet
summer markets," said Viraj Patel, FX and global macro
strategist at Arkera.

U.S. retail sales data today may inject a bit of impetus,
said Patel - especially as it will test the narrative that the
U.S. economy will lag in the post-pandemic recovery.

"Dollar crosses will continue to be driven by U.S. yields
and whether the corrective move higher - and mini U.S. bond
market tantrum - continues into next week," Patel said.

The yen was on course for its poorest week against
the dollar in two months and down about 0.9% at 106.74 from last
Friday's close.

The biggest loser this week has been the kiwi,
which was under pressure at $0.6538, as New Zealand deals with a
fresh coronavirus outbreak. Moreover, the central bank this week
flagged increased bond buying and again mentioned the prospect
of negative rates.

Against a basket of currencies, the U.S. dollar
remains 0.2% lower for the week, but it seems to have arrested a
slide that has it about 9.5% below its March peak. The dollar
index was headed for its eighth consecutive week of losses, its
longest weekly losing streak since June 2010.

DIVERGENCE

Preliminary European employment and GDP numbers due at 0900
GMT and U.S. retail sales figures at 1230 GMT are the next set
of data for investors to parse for signs of divergence between
the U.S. and European recoveries.

Gathering faith in Europe's rebound, and concerns about the
U.S. response as the virus spreads and politicians remain
deadlocked over the next relief package, have kept the euro firm
even as the dollar has been able to bounce a bit elsewhere.

A fall last week in the number of applications for
unemployment benefits in the United States to below one million
provided a note of cheer but, with some 30 million out of work
and stimulus plans stalled, the outlook remains grim.

The euro slid 0.1% to $1.1806 in early London
deals on Friday and the pound was a shade higher at
$1.3072, as investors sought to focus on a rebound in growth in
June rather than a stunning 20% quarterly contraction.

Another element of divergence has opened between Australia
and New Zealand, whose central banks are striking quite a
different tone.

The Reserve Bank of New Zealand (RBNZ) sparked a bond rally
this week by promising to extend its own purchases and, next
week, speed them up as well.

But while the RBNZ talked about sub-zero rates, Reserve Bank
of Australia Governor Philip Lowe reiterated on Friday that
fiscal support was what was needed.

"The key takeaway from the RBNZ meeting is that they’re
preparing more loosening measures to use if necessary, including
not only negative rates but also buying foreign assets – a
deliberate effort to weaken the currency," said Marshall
Gittler, head of investment research at BDSwiss.

"The market is just doing it for them, thereby saving the
RBNZ some money."
(Reporting by Ritvik Carvalho; additional reporting by Tom
Westbrook in Singapore; Editing by Kevin Liffey)

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