One catalyst behind the U.S. Dollar’s strength was a hawkish outlook by the U.S. Federal Reserve.
The U.S. Dollar finished higher against a basket of currencies for the third week in five, suggesting that a support base may be building slightly above the December 16, 2014 main bottom at 88.067. The catalysts behind the market’s strength were rising U.S. Treasury yields and a hawkish outlook by the U.S. Federal Reserve.
March U.S. Dollar Index futures settled the week at 89.808, up 0.795 or +0.89%.
The dollar rose early in the holiday-shortened week, extending its recovery from a three-year low last week, helped by buoyant short-term Treasury yields, and as investors awaited the release of minutes of the Federal Reserve’s recent policy meeting that were expected to offer clues on the pace of future interest rate hikes.
The Greenback touched a 10-day high on February 22 after minutes from the Fed’s January meeting showed policymakers confident in rising inflation.
The minutes showed voting members, as well as the wider group of policymakers, had upgraded their forecasts for the economic outlook since December.
Traders widely interpreted a slightly more upbeat tone in the minutes of the January 30-31 meeting. They appear to have cemented expectations that the Fed will hike rates under its new chief Jerome Powell next month, and that rates will be hiked on at least another two occasions in 2018.
Despite the higher close, the dollar index still faces a wall of resistance at 90.99 to 91.66. Although the current support base suggests the selling pressure has slowed, the rally is not likely to gain traction until buyers can overcome 91.657. The trend will turn up on a move through 93.825.
The Australian Dollar was under pressure most of the week before finding support for a third consecutive week inside a key support zone at .7818 to .7743. The catalysts behind the selling pressure were rising U.S. Treasury yields, a hawkish Fed, a firmer U.S. Dollar and dovish Reserve Bank of Australia minutes.
The AUD/USD settled at .7836, down 0.0071 or -0.90%.
Minutes from the RBA released on February 20 indicated policymakers were sanguine about the uptick in the global economy. RBA members also noted that wage growth “was yet to pick up” despite the robust job market and highlighted that household debt remained “elevated.”
New Zealand Dollar
The New Zealand Dollar fell last week against the U.S. Dollar. Softening the blow from the hawkish Fed minutes was upbeat economic data, however.
The NZD/USD settled the week at .7290, down 0.0098 or -1.32%.
New Zealand PPI Input was up 0.9% and PPI Output was up 1.0% versus forecasts of 0.3% and 0.4%, respectively. Quarterly Retail Sales came in at 1.7% versus a 1.4% estimate. Core Retail Sales were up 1.8% versus a 0.7% forecast.