Dollar rise dominates even as kiwi hops higher with inflation

© Reuters. FILE PHOTO: A picture illustration shows U.S. 100-dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

By Tom Westbrook

SINGAPORE (Reuters) - The dollar was headed for its best weekly gain in about a month on Friday, supported by investors' drift toward safety as rising COVID-19 infections loomed over the pandemic recovery, while a hot inflation reading sharply lifted the New Zealand dollar.

The kiwi was the biggest mover amongst majors in the Asia session, and was last up 0.6% at $0.7020, after consumer prices rose far faster than expected, bringingforward markets' rate hike expectations to August.

The dollar's recent strength, though, has been so irresistible that even the startling prospect of New Zealand leading developed markets out of emergency-level rates in a matter of weeks hasn't broken the kiwi from narrow ranges.

The kiwi is up just 0.3% for the week and is below its 200-day moving average. Tapering of bond purchases in Canada has also done little to lift the loonie, which has struggled with soft oil prices and is off about 1% on the week.

"Clearly the U.S. dollar has got some power behind it," said Westpac strategist Imre Speizer. "And I think that's holding back all the majors."

"There's an interest rate side to it," he said. "And sometimes it's a safe-haven bid...we do feel that the U.S. dollar's going to be quite strong over the next few months."

Solid U.S. data and a shift in interest rate expectations after the Federal Reserve flagged sooner-than-expected hikes in 2023 have put a floor under the greenback over the past month and made investors nervous about shorting it.

The dollar was broadly steady elsewhere on Friday but heading for weekly gains, with a rise over the week so far of roughly 0.5% against the euro and sterling and 0.7% against the risk-sensitive Australian dollar.

The U.S. dollar index, which measures the greenback against a basket of currencies, was flat at 92.562 on Friday and up 0.5% for the week, which if sustained would mark its biggest weekly percentage gain since the week ended June 20.

Ahead on Friday, traders are looking to U.S. retail sales data and consumer confidence for any reading on inflation and the strength of the recovery.

BOND RALLY

The mood across financial markets has been jittery for a couple of weeks as virus infections are surging.

Treasuries have rallied for a third week in a row with no obvious catalyst but in tandem with worries that the new infections could dent recovery progress, that slowing Chinese growth puts the brakes on global growth and that U.S. inflation looks transitory, or at least under central bankers' control.

The safe-haven yen has also been firm, with a loss of 0.1% on the dollar making it second only to the kiwi as the best-performing major against the strong dollar. The yen is headed for its best week in a month against the euro.

It last bought 109.99 per dollar and 129.88 per euro. The euro stood at $1.1808, not far above the three-month low of $1.1772 it tested during the week.

Sterling traded at $1.3835 in Asia, having handed back some of a bounce that came with strong jobs figures and hawkish comments on Thursday from Bank of England policymaker Michael Saunders.

The Australian dollar drifted 0.2% higher on Friday to $0.7435 but was tracking for a weekly loss and fell to a five-month low on the kiwi as New Zealand's rates outlook shifted.

The Thai baht, among the currencies most battered by the pandemic's resurgence, sat at a three-month low and tracked toward a fifth consecutive weekly loss as the tourism-dependent country posted record infections.

Cryptocurrencies found support but were perilously close to the bottom of recent ranges with bitcoin at $31,947 and ether at $1,947.