Fed Member Lockhart Sparks US Dollar Rally

Asian currencies are down on Wednesday morning while the US dollar continued rally after comments from Federal Reserve Member Lockhart on Tuesday night.  The greenback surged to 98.22 in the morning session. Mr. Lockhart, a voting member on the Fed’s monetary-policy committee, told The Wall Street Journal that only a “significant deterioration in the economic picture” would keep him from voting for the central bank to raise short-term U.S. interest rates for the first time since 2006. The message sparked dollar-buying.

Investors regard Mr. Lockhart as a centrist among Fed officials, so his words sent a strong signal that the Fed is moving closer to raising interest rates at its September meeting.

The dollar, which had moved little throughout Tuesday’s session, increased 0.6% against the common currency. One euro bought 1.0891 in late-afternoon trade, on track to close at a two-week low. The dollar rose 0.2% versus the yen, to ¥124.28, heading for its strongest closing value since July 20.

The yen weakened this morning following comments from the IMF ahead of the Bank of Japan meeting this week. Economists forecast the BOJ will taper its asset purchases next year, four see a move in 2017, while 13 forecast it will be in 2018 or later, according to a Bloomberg survey last month. The rest said tapering is unforeseeable.

While Gov. Haruhiko Kuroda said in May that he expects no obstacles in buying government bonds, the IMF analysts join Nomura Securities Co. and BNP Paribas SA in questioning the sustainability of the unprecedented debt purchases. The BOJ could deliver continued stimulus by extending the maturity of its JGB purchases or by scaling up private asset purchases if needed, the IMF economists wrote. Kuroda expanded already-record stimulus in October, giving the bank scope to buy every new bond issued by the Ministry of Finance.

In other Asian countries, the Aussie eased by 23 points while the kiwi gave up 13 points as both faced economic hardships. The kiwi has weakened as global commodity prices retracted, but the harsh decline in dairy prices, the country’s leading export has really hurt the NZD. The Aussie soared on Tuesday after the RBA left rates in place but took a more positive stance than expected. The Aussie had been trading below the 0.73 price but soared after the RBA only to give back ½ of its gains this morning as the US dollar weighed heavily. he resource-driven currency has been subject to some wild swings over the past 24 hours, falling as low as 0.7264 on concerns around commodity prices before bouncing as high as 0.7430 in offshore trade as commodities recovered.