Dollar firm vs Aussie, euro on heightened recession worries

Dollar firm vs Aussie, euro on heightened recession worries

By Kevin Buckland

TOKYO, Aug 16 (Reuters) - The safe-haven U.S. dollar reached a fresh one-week high on Tuesday while the euro, Aussie and Chinese yuan sank to new lows after weak global economic data regnited recession fears.

The dollar index =USD , which measures the greenback against six major peers, rose as high as 106.62, its strongest level since Aug. 8, before last trading 0.08% higher at 106.55.

Against the yuan CNY=CFXS , the dollar went high as 6.7950 at one point, a level last seen in mid-May.

The Australian dollar AUD=D3 sank as low as $0.70005, threatening to drop below the psychological 70-cent mark for the first time since Wednesday.

New Zealand's kiwi NZD=D3 dipped to $0.6349, also its weakest since Wednesday.

Investors' latest move to the safety of the dollar came after a raft of weak global economic indicators. Overnight data showed U.S. single-family homebuilders' confidence and New York state factory activity fell in August to their lowest levels since near the start of the COVID-19 pandemic.

That followed surprisingly weak Chinese activity data spanning industrial output, retail sales and fixed-asset investment, the world's second largest economy was suffering a faltering recovery from draconian COVID-19 lockdowns.

"The weakness in the U.S. and Chinese economies is typically a bad sign for commodity currencies," Commonwealth Bank of Australia strategist Joseph Capurso wrote in a note to clients.

"The path of least resistance for NZD is lower."

The Reserve Bank of New Zealand is widely expected to raise rates by half a point again on Wednesday, with the focus on whether policymakers follow the Federal Reserve and Reserve Bank of Australia in shifting to a more data-driven approach.

The dollar index had retreated as low as 104.63 last week for the first time since the end of June, after sliding from a two-decade high at 109.29 in mid-July, as markets pared bets for continued aggressive Fed tightening amid signs of a cooling in the economy and inflation.

However in recent days, several Fed policymakers have spoken of the need for continued rate hikes.

"Fed officials have no choice but to sound tough in the face of a very, very tight labour market and far too-high inflation," Kit Juckes, the head of FX strategy at Societe Generale, wrote in a research note.

"It's hard to build a compelling case to sell the dollar in that world."

The euro EUR=EBS , slipped to the weakest since Aug. 5 at $1.0147 before trading little changed at $1.0158.

Sterling GBP=D3 dropped as low as $1.2039 for the first time since Aug. 5.

Against the yen JPY=EBS , another haven currency, the dollar was 0.07% higher at 133.375.



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Reporting by Kevin Buckland
Editing by Shri Navaratnam & Simon Cameron-Moore