[TOKYO] The US dollar held gains after China strengthened the yuan as the nation returned from week-long holidays, helping to ease global financial turmoil that had spurred investors to bet the Federal Reserve will delay raising US interest rates.
The greenback advanced for a second day against the yen and the euro, often perceived as safe assets, after a report Friday showed retail sales in the world's largest economy increased more than forecast in January.
Large hedge funds and speculators cut their bets on the dollar's gains last week by the most since June. The Aussie and Kiwi dollars surged as stock gains boosted risk sentiment, even after figures showed a slump in exports and imports for China, the smaller nations' biggest trading partner.
"Chinese data had been bad for a while so it's not fresh news," said Koji Fukaya, the Tokyo-based chief executive officer at FPG Securities Co.
"A negative outlook for the US economy or speculation that there won't be a rate increase this year would be fresher factors. The Chinese impact isn't large."
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, added 0.1 per cent to 1,220.05 as of 6:45 am in London, after touching its lowest since Nov 4 on Feb 11. The dollar rose 0.6 per cent to 113.97 yen and gained 0.3 per cent to US$1.1223 per euro.
Investors in China returned from a week-long holiday during which a rout in global stock markets boosted demand for the relative safety of US Treasuries and Japanese government bonds.
Monday's trade report showed overseas shipments declined 6.6 per cent in January in yuan terms from a year earlier, while imports fell 14.4 per cent, leaving a trade surplus of 406.2 billion yuan (S$87.2 billion).
Federal Reserve chair Janet Yellen said last week policy makers were assessing the impact of the swings in the markets on the economy but doubted that would prompt it to reverse course and cut rates. The Fed increased borrowing costs in December for the first time in almost a decade.
There's about a 30 per cent probability the Fed will raise interest rates in 2016, according to futures data compiled by Bloomberg. The odds were more than 90 per cent at the end of last year.
Data from the Commodity Futures Trading Commission showed hedge funds and other large speculators cut wagers on dollar strength to a net 176,872 contracts in the week ended Feb 9, the least since October. Bullish bets dropped by 88,287 contracts, the most since June.
Prime Minister Shinzo Abe said in parliament Monday that the country's finance minister will continue to watch the currency market. Japanese officials typically start letting markets know of their wariness when the yen's moves are rapid and extreme by speaking out. On Jan 20, the currency slid after an unidentified government official said authorities were closely monitoring the foreign-exchange market.
The yen strengthened against all of its 10 major counterparts this year, and surged more than 10 yen against the dollar over the past two weeks to 110.99 on Feb 11, its highest since Oct 2014. The Japanese currency pared gains Monday as stocks soared on expectations for more monetary stimulus after a report showed Japan's economy shrank more than expected last quarter.
Asian stocks gained, underpinning the Australian and New Zealand dollars which typically are weighed down by weak data from China. The Aussie climbed 0.6 per cent to 71.56 US cents and the Kiwi rose 0.6 per cent to 66.66 US cents.
"The dollar-yen rate is tracking the Japanese stocks higher," said Masashi Murata, a vice president at Brown Brothers Harriman & Co in Tokyo.
"Caution is needed for the sustainability of this stability. The US retail data kept expectations for a rate rise this year but skepticism remains. Japanese stocks are rising today but the recent plunge makes investors wary of signs of recession risks for Japan."