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 COVID-19 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 US Federal Reserve and other central banks have signaled.
The US dollar’s move is “a function of what’s happening on the yields side,” said Jeremy Stretch, head of G10 FX strategy at CIBC World Markets.
Photo: AFP
The 10-year yield briefly climbed above the S&P 500 dividend yield on Thursday, indicating “uncertainty that is writ large,” he said.
On Friday, the US dollar index rose 0.59 percent to 90.847, its highest level in a week.
It gained against the yen, touching ¥106.69 for the first time since September last year.
In Taiwan, the New Taiwan dollar lost NT$0.050 to close at NT$28.306 against the greenback, but it was up 0.11 percent from NT$28.338 a week earlier.
The benchmark 10-year US Treasury yield surged above 1.6 percent on Thursday for the first time in a year after a weak seven-year note auction.
US yield increases have accelerated this month as Fed officials refrain from expressing concern about the yield gains.
“The Fed has not really hinted that that’s making them uncomfortable, so the bond market’s going to push that,” Oanda Corp senior market analyst Edward Moya said in New York. “That’s really dictating this move in the dollar.”
Riskier currencies retreated on Friday. The Australian dollar fell 1.99 percent 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 signaling higher growth, likely because the country’s central bank’s yield curve control policy would restrain its bond yields from moving much higher, which 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 might be among the biggest losers.
“There’s a big, big concern that this reflation risk is going to get out of hand and that’s going to really pummel the emerging market currencies, and I think you’re going to see that investors are going to need to reassess their dollar positions,” Moya said.
Additional reporting by CNA, with staff writer
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