Dollar Rallies to Six-Week High Against Yen After FOMC Signal

(Bloomberg) -- The dollar extended Wednesday's gains after the Federal Reserve viewed that the recent soft U.S. economic data is transitory, boosting prospects of a June interest rate hike.

Real-money accounts bought dollars against the yen, sending Japan's currency to a six-week low, according to a foreign-exchange trader who asked not to be named as they are not authorized to speak to the media. The advance wasn't enough to take out exporter dollar sales from Tokyo corporates who left their orders over the Golden Week holidays, the trader said. Australia's dollar erased losses after Reserve Bank Governor Philip Lowe said “at some point, interest rates in Australia will increase.”

U.S. overnight interest swaps showed the odds of a June rate hike increased to 80 percent, up from around 65 percent a week ago. Ten-year U.S. yields climbed 4 basis points Wednesday. The Treasury market is closed in Asia due to the Japanese holidays.

“The dollar rally post-FOMC is justified by the ratcheting up of June Fed rate hike expectations,” Ray Attrill, global co-head of foreign exchange at National Australia Bank Ltd. in Sydney, wrote in a note. The dollar's rally has “legs” but not against the euro due to the French election results on Monday, he wrote, adding that dollar bulls are better off expressing their views against commodity currencies for the time being.

• AUD/USD rebounds on Lowe's comments after earlier hitting a 4-month low of 0.7407 on disappointing March trade surplus and sliding commodity prices
  • Lowe said household debt rising faster than incomes has left the economy in a weaker position and reminded borrowers that rates will one day rise
  • Australia's March trade surplus came in at A$3.1b, missing the A$3.25b median survey estimate
• USD/JPY pares gains to 112.79 after posting a six-week high of 112.89
  • Japanese exporters left sell orders just above the 112.87 Ichimoku cloud over the Golden Week holidays, a trader says
  • EUR/USD is firmer by 0.1% at 1.0892
  • Bloomberg Dollar Spot Index is steady at 1,220.77 after rising 0.4% Wednesday

  To contact the reporter on this story: Michael G. Wilson in Sydney at mwilson176@bloomberg.net.

  To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Patricia Lui, Nicholas Reynolds

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