US dollar retreats to 3-week low

London

THE US dollar retreated on Tuesday (Oct 19) to a 3-week low, hit by a proliferation in rate-hike bets in other markets, while the yuan surged to its highest in 4 months, benefiting from greenback weakness and a slight easing in property market concerns.

A robust start to the US earnings season and hopes that China will be able to contain its property market malaise boosted global stock markets, lifting currencies such as the Australian and New Zealand dollars and the Norwegian crown that benefit when risk sentiment and commodity prices are high.

The dollar index, which measures the greenback against six peers, sank as low as 93.501 for the first time since Sep 28, before inching up to 93.565, 0.35 per cent down on the day. A week ago, the dollar index reached a one-year high of 94.563, benefiting from stagflation fears as well as bets the Federal Reserve would begin tapering its monetary stimulus next month, followed by interest rate increases next year.

But with Fed tightening priced in, money markets are raising wagers for policy normalisation elsewhere, especially in Britain where a cumulative 35 basis points in rate hikes are priced in by the end of the year.

New Zealand's data on Monday (Oct 18) showed the fastest consumer-price inflation in more than a decade. Britain and New Zealand have consequently led a rise in short-term bond yields, with short-dated yields climbing comparatively more than in the United States.

"We had a big short position build-up in euro, Aussie dollar, Canadian dollars but after real US yields fell back last week, it took some heat out of the dollar rally which means we are seeing some short covering now," said Kenneth Broux, FX strategist at Societe Generale. "Dollar gains have been led by repositioning for the Fed Funds rate and now we have a repricing in many other place."

The New Zealand dollar rose as high as US$0.715 for the first time since Sep 14, The Aussie touched a six-week high of US$0.7474, shrugging off a dovish set of minutes from the Reserve Bank of Australia's last meeting.

The yuan was a standout gainer, as fears about contagion from property giant China Evergrande's debt troubles receded and some of its peers made bond coupon payments. Policymakers said late last week the situation was controllable.

That, combined with the dollar pullback, took onshore yuan as high as 6.3883 per dollar, the strongest since June 16. In offshore trading it reached 6.3785, also the highest since June 16 and set for the biggest daily gain since July.

The euro also advanced, rising 0.4 per cent to US$1.167, a level not seen since Sep 29. REUTERS