Dollar gains as focus turns to December Fed rate hike

September 12, 2016 8:54 PM EDT

Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

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By Sam Forgione

NEW YORK (Reuters) - The U.S. dollar hit a one-week high against a basket of six major rivals on Tuesday as focus turned to the likelihood of a December Federal Reserve rate hike, while declines in riskier commodity currencies also boosted the dollar.

The dollar index, which measures the greenback against a group of six major currencies, hit a one-week high of 95.672 as U.S. Treasury yields surged on what analysts said were growing expectations for a December Fed rate increase.

The dollar followed gains in U.S. yields, which spiked after a 30-year Treasury bond auction in which some investors withheld bids. Benchmark 10-year Treasury yields, as well as three-year yields, hit their highest levels since early June.

The focus on a December rate hike came after Fed Governor Lael Brainard struck a dovish stance in a speech on Monday and reduced expectations that the Fed would hike rates next week.

"Dollar bulls have conceded September, and now have their sights set on December," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Fed funds futures on Tuesday showed traders saw just a 15 percent chance of a rate hike when the Fed meets next week, compared to a more than 55 percent chance of a hike in December, according to CME Group's FedWatch program.

The dollar also received a boost against the yen after Nikkei News Service reported that the Bank Of Japan (BOJ) plans to position taking interest rates further into negative territory. The BOJ is scheduled to meet on the same dates as the U.S. Fed, on Sept. 20-21.

The dollar was last up 0.79 percent against the yen at 102.64 yen, after hitting a session high of 102.74 yen .

The move "could be reflecting some dovish expectations ahead of the Bank of Japan meeting next week," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.

A decline in oil prices on concerns of a global crude supply glut persisting into next year boosted the dollar against commodity currencies such as the Australian and New Zealand dollars.

The Australian dollar touched a nearly seven-week low against the greenback of $0.7443, while the New Zealand dollar hit a more than one-week low of $0.7235 .

The euro remained within recent trading ranges against the dollar and was last down just 0.15 percent at $1.1215 .

(Reporting by Sam Forgione; Editing by Nick Zieminski and Will Dunham)

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