Dollar advances on gains in US stocks, oil prices

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The dollar rose on Thursday, bolstered by gains in the U.S. stock market and a rebound in oil prices, suggesting that the Federal Reserve will not be as constrained to push ahead with its plan to raise interest rates several times this year.

Oil prices have been volatile the first two weeks of the year, but on Thursday, U.S. crude futures were up 3.8 percent at $31.63. That has supported shares on Wall Street, with key indexes up more than 1 percent on the day.

In the currency market, that means gains for the dollar and losses for the safe-haven yen and low-yielding euro.

"The big picture is really about risk," said Lee Ferridge, head of macro strategy for North America at State Street in Boston.

"In time of risk aversion, we have seen high-beta currencies such as the South African rand, the New Zealand and Australian dollars. That has led to flows into the yen."

Both the safe-haven yen and the low-yielding euro tend to gain in times of market anxiety because these currencies are often used to fund investment in risky assets. They consequently rise back up when there is a retreat from those assets.

The euro had earlier benefited from a Reuters report saying that European Central Bank policy makers see less need for further stimulus in the near term.

On Thursday, Reuters reported that many ECB policy makers are skeptical about the need for further policy action and even if the bank comes out with lower inflation and growth forecasts for 2018 in March, it should not act immediately.

"In a sense, that's understandable," said Ferridge. "Euro zone data is doing pretty well. Growth is not so bad. And given the negative rates and money-printing now until 2017, there really is no need for further stimulus at the moment."

In afternoon trading, the euro fell 0.17 percent against the dollar at $1.0865. It was 0.41 percent higher versus the yen at 128.26 yen. The dollar rose 0.56 percent against the yen to 118.06 yen.

The ECB also holds a policy meeting next week with the session expected to be relatively uneventful. The big test comes when the ECB releases its initial 2018 growth and inflation forecasts on March 10.

Oil-rich Canada's dollar fell, meanwhile, to its lowest since April 2003 with a further slide in crude prices expected to undermine the Canadian economy. That fueled that the Bank of Canada could cut rates as early as next week.

The U.S. dollar was last flat on the day at C$1.4357.