The Week Ahead: Yellen in the Spotlight

Bank of America Merrill Lynch

Bank of America Merrill Lynch

"A Fed rate hike can further dampen appetite for emerging markets as it points to further strengthening in the investment environment for developed markets", she said. The Australian dollar inched up 0.2 percent to $0.7619 as the greenback's broader advance slowed.

The Nasdaq rose 0.3% in early trading although the other two major USA indices, the Dow Jones and the S&P 500, were both unchanged.

The New Zealand dollar was little changed, having traded in a 0.50 USA cent range for the past week, as traders await testimony from Federal Reserve chair Janet Yellen and U.S. inflation data to provide fresh impetus to the greenback.

Against the yen, the dollar was 0.1 percent higher at 113.98, after notching a high of 114.18 in the wake of the jobs report, its loftiest level since May 11.

"The solid jobs report gives us more reason to expect the Fed to announce that it's prepared to start trimming its balance sheet", said Mitsuo Imaizumi, Tokyo-based chief foreign exchange strategist for Daiwa Securities.

"So while it may not be coordinated communication, I do think there's been a change in rhetoric from central banks across the world - though the ECB is the central bank to watch in the second half of the year". But Germany's DAX climbed 0.1 percent to 12,461.

Last month, the Fed has raised interest rates by 25 basis points to 1.25 percent.

The Canadian dollar fell against its United States counterpart as oil prices fell and traders await an interest rate hike decision by the Bank of Canada on Wednesday.

He added that the Bank of Japan in contrast is not anywhere close to exiting its policy and has taken steps to weaken its yen.

Japanese government bond (JGB) yields had also tracked the rise in their USA and euro zone counterparts. The Russell 2000 index of smaller-company stocks rose 2 points, or 0.2 percent, to 1,411.

As the USA economy is back on track for steady growth, Fed policymakers are preparing to unwind its crisis-era policies to avoid igniting inflation pressures or pumping up asset bubbles. The resulting surge in euro zone yields had also helped the benchmark Treasury yield climb to two-month highs on Friday.

Dollar bulls are banking on Yellen to retain her hawkish stance, emboldened by last Friday's relatively robust USA non-farm jobs report."The main focus is whether Yellen makes it clear in Congress that the Fed intends to begin winding down quantitative easing".

A higher USA currency makes dollar-denominated commodities more expensive for holders of other currencies, which could subdue demand.

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