Dollar holds gains as Powell shuns negative rates, Aussie slips after jobs plunge

By Stanley White

TOKYO (Reuters) – The dollar held gains against major currencies on Thursday after U.S. Federal Reserve Chairman Jerome Powell dismissed speculation that policymakers will adopt negative interest rates.

Among Asian currencies, the Australian dollar fell on data showing the country shed jobs in April at the fastest pace on record, suggesting more monetary and fiscal easing may be needed to support the economy.

The focus will shift to economic data from the United States and Europe in the next two days for more clues on the depth of the downturns there, while investors will closely watch China’s activity gauges for signs on how long it may take to emerge from the sharp shock caused by the coronavirus outbreak.

“The dollar managed to bounce back after Powell’s comments on negative rates, but now the dollar’s bias is fairly neutral,” said Takuya Kanda, general manager of the research department at Gaitame.com Research Institute in Tokyo.

“There could be some safe-have flows into the dollar, but everyone is facing the same economic problems caused by the coronavirus.”

The dollar traded at $1.0811 against the euro on Thursday following a 0.3% gain in the previous session.

Against the pound , the greenback was quoted at $1.2212, close to a five-week high.

The dollar bought 0.9729 Swiss franc after gaining 0.3% on Wednesday.

The greenback was little changed at 106.88 yen .

Powell is the latest in a parade of policymakers to brush off the notion that they might push rates into negative territory, after Fed futures began pricing a small chance of sub-zero U.S. rates within the next year.

“The committee’s view on negative rates really has not changed. This is not something that we are looking at,” Powell said on Wednesday, referring to the Fed’s policy-setting Federal Open Market Committee.

Powell spoke in response to a question after offering a sobering assessment of U.S. economic outlook in a closely-watched speech.

The United States and other countries are easing restrictions to allow factories and shops to open again for business, but there are significant risks of a second wave of infections and a full-fledged economic recovery is likely to remain distant until a vaccine for the coronavirus is available.

U.S. data on weekly jobless claims due later Thursday and a survey on U.S. manufacturing due Friday should offer more clues about the economic outlook.

The Australian dollar fell 0.46% to $0.6424 after data showed unemployment increased by 594,300 in April, slightly more than the median estimate. The jobless rate rose to a five-year high.

Across the Tasman Sea, the New Zealand dollar fell 0.43% to $0.5974, adding to a decline of more than 1% on Wednesday after the Reserve Bank of New Zealand flagged the possibility of negative interest rates.

New Zealand’s government presented a budget on Thursday that set aside NZ$4 billion to support businesses and subsidise wages, as many countries increase spending to offset the economic damage caused by the pandemic.

Many investors await China’s release on Friday of data on industrial production, retail sales and investment to measure how quickly the world’s second-largest economy is recovering from its first contraction in decades in the first quarter.

In the onshore market, the yuan eased slightly to 7.0990 per dollar.

The novel coronavirus first emerged in China late last year and has since spread across the globe, paralysing economic activity.

Traders in the euro are also focused on the release of preliminary first-quarter gross domestic product data on Friday to assess the scale of the damage caused by the outbreak.

(Reporting by Stanley White; Editing by Kim Coghill and Sam Holmes)