The New Zealand dollar and Norwegian crown were big losers to a stronger US dollar on Monday as commodity prices dived again and investors bet central banks would lean towards more support for economies buffetted by the fallout. The greenback recovered more ground after last Thursday's stunning 3 percent fall against the euro, strengthened by jobs data on Friday that bolstered the case for a rise in US interest rates this month.
But with volume diminishing before Christmas and a long run in to the December 16 meeting of the Federal Reserve, this week's action looked likely to focus on other currencies in the G10 group of major developed economies. While the dollar gained a third of a percent against a basket of currencies, it surged 1.1 percent against the kiwi ahead of Wednesday's meeting of the Reserve Bank of New Zealand. Another cut in interest rates there is on the table but, many say, is not priced in by markets.
"Clearly there's going to be some pre-pricing of a move in rates this week," said Dominic Bunning, a strategist with HSBC in London. "Our view is they will cut, and you can see that it's under pressure this morning." Barclays analysts also called for the kiwi to fall ahead of Thursday's Reserve Bank decision on rates, saying a cut was only 40 percent priced in by the market. The currency stood at $0.6661. The dollar was up 1.3 percent against the Norwegian crown at 8.6329 crowns, with lower oil prices also weighing.
The US dollar was up 0.6 percent against the euro at $1.0818, still down almost 3 cents from highs it reached before last Thursday's European Central Bank meeting. Other early movers in London included another 0.3 percent weakening of China's yuan in offshore trade, following another weaker fixing of official rates onshore. Chinese reserve data showed capital was still flowing out of China, Bunning said, a trend that looked likely to keep putting pressure on the currency. A weaker yuan, or renminbi, is one of next year's big forecasts for many funds and investment banks as the capital account opens up, allowing more of the profits from a decade of growth to leave China.
But after the IMF included the yuan in its basket of reserve currencies, some of that flow should be countered by Chinese assets being included in central bank and other official reserves. French bank Societe Generale's outlook for 2016 predicted more risks to the yuan. "We like long Canadian dollars against the renminbi in case China's stealth depreciation gets out of control," they said.