By Ian Chua
SYDNEY (Reuters) - The dollar languished at three-month lows against a basket of major currencies early on Thursday after surprisingly soft retail sales prompted investors to wonder if the Federal Reserve can afford to hike interest rates at all this year.
A key measure of sales was flat in April, confounding forecasts for a 0.5 percent increase and adding to other disappointing data that could see analysts downgrade their U.S. growth forecasts for the rest of the year.
Fed funds futures <0#FF:> all rose with many reaching contract highs as investors pushed out the timing for an eventual Fed tightening.
The dollar index (DXY) last traded at 93.630, having fallen as far as 93.461. It has now shed nearly 7 percent from a 12-year peak of 100.390 set in March.
Against the yen, the greenback slid to a two-week trough of 119.03
"Market expectations for a 2015 Fed hike have dropped further," said Elsa Lignos, senior currency strategist at RBC, adding market pricing for a first full hike is now drifting into early next year.
"From an FX perspective, it is a blow to the narrative that April would bounce back after Q1 weakness and gives further legs to the USD correction."
Sterling managed to hit a fresh five-month high of $1.5768
Among the best performers were the Antipodean currencies. The Australian dollar broke above 81 U.S. cents
Its New Zealand counterpart rallied to $0.7552
The kiwi was given a further boost after local retail sales posted a record 2.7 percent jump in the first quarter, blowing away analyst consensus for a 1.5 percent increase and any thoughts of a near-term interest rate cut.
There is no other economic data out of Asia that could excite markets on Thursday.