Dollar rises on rate hike talk, Shanghai bounces

An uptick in US economic growth increased expectations the Federal Reserve will raise interest rates by year-end and supported the dollar Monday, while Shanghai recouped early losses despite more disappointing China data.

Dealers will closely watch the release of key US data this week, including employment, that will provide a better idea of when the central bank will announce lift-off.

Thursday will also see the Bank of Japan release its Tankan survey of business confidence, with analysts forecasting a dip in reaction to China’s growth slowdown which has rattled global markets.

St Louis Fed chief James Bullard on Friday raised the prospect of a lift in US borrowing costs when he said he would “like to get going”. His comments reinforced the view that monetary policy would be tightened before 2016.

Fed boss Janet Yellen said Thursday she expects a hike by year-end, pointing to recent strong data.

On Friday the Commerce Department said the US economy grew 3.9 percent in April-June, up from the 3.7 percent originally stated thanks to a boost in investment and consumer spending.

Attention will now turn to next Friday’s non-farm payrolls results, with a strong figure likely to reinforce calls for an early rate move.

On forex markets the dollar rose against most emerging currencies. The Malaysian ringgit lost 0.45 percent, Taiwan’s dollar shed 0.29 percent and the Thai baht was 0.31 percent lower. However, the Indian rupee and Indonesia’s ringgit edged up slightly from morning selling.

Koji Fukaya, the chief executive officer at FPG in Tokyo, told Bloomberg News: “US data this week is important and even if results are mixed, it won’t affect the baseline as the Fed made clear its intention to raise rates this year. The dollar is set to gain broadly.”

– ‘Super-sensitive’ –

The euro also weakened, to $1.1168 from $1.1202 in New York.

However, the greenback eased to 120.26 yen from 120.49 yen Friday as uncertainty on trading floors led investors into safe-haven assets.

Stock markets were mostly in the red on the prospect of higher US interest rates — which would hurt investment in the region — and fears over China’s long-running woes, which have sent world markets tumbling for weeks.

On Wall Street Friday the Dow ended slightly higher but the S&P 500 and Nasdaq retreated.

“Everyone is super-sensitive to China at the moment,” Chris Weston, chief market strategist at IG, told Bloomberg TV.

In Asia Monday Tokyo ended 1.32 percent lower as the stronger yen weighed on exporters, while in late trade Singapore was 1.34 percent down. There were also losses in Jakarta, Bangkok and Manila.

However, Sydney added 1.42 percent by the end of the day.

Hong Kong, Seoul and Taipei were closed for public holidays.

Shanghai staged a recovery after a morning sell-off, ending 0.27 percent higher despite data showing China’s crucial industrial companies saw profits fall 8.8 percent in August — hit by last month’s shock yuan devaluation, weak demand and plunging stocks.

The result is the latest highlighting weaknesses in the Chinese economy after news last week that a gauge of factory activity in September had hit its lowest point in six-and-a-half years. A growth slowdown in China has fuelled turmoil across world markets as the country is a key driver of the global economy.

Chinese President Xi Jinping on Friday sought to shore up confidence in the world’s number two economy, saying he was confident it would post “healthy” growth in the future.

He told a joint press conference with US President Barack Obama after White House talks that China had moved from “speed-based growth to quality-based growth”.

Chinese authorities are trying to rebalance the economy — which accounts for one out of every eight dollars of worldwide GDP — from one reliant on exports and government investment to one where domestic consumption is the main driver.

But alarm bells have rung over how rapidly the economy is slowing, and whether the so-called new model is expanding fast enough to take up the slack.