Dollar poised to extend rally if U.S. jobs data are released

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Dollar poised to extend rally if U.S. jobs data are released

By Tom Westbrook SYDNEY, Jan 7 Reuters - The dollar is poised to hit broad weekly gains and could extend its rally if the U.S. labor data is released on Friday, which supports the case for early Federal Reserve interest rate hikes. The Bank of Japan is likely to be behind the curve in rate hikes as investors reckon the yen is the most prominent casualty in the first trading week of the year. But firm expectations that the Fed could raise rates as soon as March and pushes up U.S. yields and the currency. The dollar was trading near a five-year peak on Tuesday at 116.35 and hovered around 115.87 in Asia on Friday, where moves were slightly ahead of jobs data at 1430 GMT. It's up about 0.7% on the yen this week and 2.7% over the last five weeks. The dollar is eyeing its best week in more than a month against the Australian and New Zealand dollar. On Thursday, the Aussie fell through support around $0.7184 and last bought $0.7159. It has lost 1.5% for the week. The kiwi was near a two-week low of $0.6751 on Friday, and down 1.4% for the first trading week of 2022. The dollar is up about 0.6% for the week to $1.1301 per euro. It surged to a 17-month high on the South Korean won, though has eased a bit from Thursday's six week peak against the offshore yuan. On Thursday, St. Louis Fed President James Bullard said that the Fed could start reducing its balance sheet soon after it begins hiking, and even dovish San Francisco Fed President Mary Daly said that the balance sheet reduction would follow normalising rates. Partial labour data on Wednesday beat market expectations by miles and a strong non-farm payrolls figure later on Friday, especially if it is bigger than the projected 400,000 jobs added last month, bolstering the case for sooner hikes. If the Fed has more fuel to maintain the hawkish rhetoric, which supports the March hike probability, analysts at NatWest said in a note to clients, the downside is probably limited. The U.S. dollar index was at 96.206. This week sterling held its own as traders believe that the Bank of England will soon begin its own hiking path. It bought $1.3545 last Tuesday, not far from Tuesday's two-month high of $1.3599. It is close to a two-year high on the euro. The big moves in the U.S. bond market have unettled traders' sentiment across asset classes, and cryptocurrencies have dropped sharply in holiday-thinned trade. In Asia trade, the price of virtual currency hit its lowest since September, at $40,939. A break of support around $39,000 could leave it open to further losses, traders said. It was down 5% at a three month low of $3,245. The Thai baht rose to a Thursday slide after the country raised its virus alert level, which is foreshadowing tighter restrictions, which is why rising Omicron cases are causing jitters and causing jitters in emerging markets.