Dollar gains on higher yields while risky currencies weaken
New York
THE US dollar gained on Friday as US government bond yields held near one-year highs, while riskier currencies such as the Australian dollar weakened.
Yields have surged as an acceleration in the pace of vaccinations globally and optimism over improving global growth bolster bets that inflation will rise. That has also led investors to price in earlier monetary tightening than the Federal Reserve and other central banks have signalled.
The dollar move is "a function of what's happening on the yields side", said Jeremy Stretch, head of G10 FX strategy at CIBC World Markets. The 10-year yield briefly climbed above the S&P 500 dividend yield on Thursday, he noted, indicating "uncertainty that is writ large." The dollar index rose 0.59 per cent to 90.847, its highest level in a week. It gained against the yen, touching 106.69 for the first time since September.
The benchmark 10-year Treasury yield surged above 1.6 per cent on Thursday for the first time in a year after a weak seven-year note auction. It was last at 1.45 per cent.
US yield increases have accelerated this month as Fed officials refrain from expressing concern about the yield gains.
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"The Fed has not really hinted that that's making them uncomfortable, so the bond market's going to push that," said Edward Moya, senior market analyst at Oanda in New York. "That's really dictating this move in the dollar."
Riskier currencies retreated. The Aussie fell 1.99 per cent to US$0.7713, after topping US$0.80 on Thursday for the first time since February 2018.
Marshall Gittler, head of research at BDSwiss, said the Australian dollar was underperforming despite the market signalling higher growth, likely because the country's central bank's yield curve control policy would restrain its bond yields from moving much higher. That, in turn, could limit the attractiveness of the currency.
The greenback is likely to continue to benefit from safe-haven flows if risk appetite continues to worsen, and emerging market currencies may be among the biggest losers. REUTERS
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