Dollar surges on quarter-end flows; outlook robust

LONDON: The dollar climbed against a swathe of currencies on Tuesday amid fiscal year-end demand by Japanese firms while the Australian dollar slipped despite a Chinese survey showing manufacturing returned to growth in March.

Tuesday is the last trading day of Japan’s fiscal year and the end of the quarter for major investors elsewhere, which has fuelled some volatility as big currency market players closed their books. The bulk of those positioning changes caused the dollar to strengthen.

“The talk is Japanese names are short of dollars, which is likely to keep the dollar bid well into London time,” said Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo.

With news on the coronavirus front decidedly mixed as Italy reported its slowest rate of new confirmed cases in two weeks while the number of daily deaths in Spain jumped, investors resumed purchasing the dollar.

Against a basket of six other currencies =USD, the dollar rose 0.7% to 99.88. It reached 102.99, its highest in more than three years, earlier this month as a global market selloff fuelled a rush for dollars. Dollar demand has ebbed, but analysts are still forecasting more dollar gains.

For the quarter, the dollar was the biggest gainer =USD, rising 2.5%. The Norwegian crown was the biggest loser NOK=D3, falling 19% versus the greenback.

“The dollar is still in demand despite pressure easing on risky assets and with liquidity far from average, the main thing to watch today should be month-end quarter-end rebalancing,” said Stephen Innes, chief market strategist at financial services firm AxiCorp.

The dollar rose 0.7% to 108.60 yen JPY=EBS on Tuesday. The Chinese yuan CNY=CFXS CNH=D3 was the only currency to buck the trend, holding firm against the dollar in both the onshore and the offshore market.

China’s official manufacturing Purchasing Manager’s Index unexpectedly showed activity swung to expansion in March. China’s economy is still expected to see a large contraction in the first quarter.

While the Chinese currency stood firm against the dollar, the Australian dollar weakened, down 1.3% percent to $0.609.

The euro EUR=EBS fell 1% to $1.0927 and sterling GBP=D3 declined 0.6% to $1.2347.

Broader market gauges of dollar funding and market volatility also declined from multi-year highs on Tuesday. Three-month currency swaps in euro-dollar EURCBS3M=ICAP flipped into a rare premium against the dollar.

Those volatile moves are probably a function of quarter-end flows rather than pointing to any structural imbalances in the FX markets, according to Kenneth Broux, a currency strategist at Societe Generale in London.