FOREX-Dollar near 2-1/2-wk peak on higher yields, trade tensions; Aussie slips

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* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

* Bounce by U.S. yield from 8-wk lows, Sino-U.S. woessupport USD

* RBA Lowe says c.bank to consider June cut, Aussie slips

By Shinichi Saoshiro

TOKYO, May 21 (Reuters) - The dollar was steady near a2-1/2-week high on Tuesday, supported by higher U.S.-yields andits safe-haven status, with growing worries that the U.S.-Chinatrade war could worsen following Washington's crackdown onChina's Huawei Technologies.

The dollar index against a basket of six major currencies .DXY was a shade higher at 97.965 after brushing 98.036overnight, its highest since May 3.

Global equities have taken a hit this week, with shareprices in chipmakers falling in the wake of the U.S. movesagainst Huawei. MKTS/GLOB

"The dollar has established itself as a safe-haven and itattracts demand in times like this, with equities falling andmarket volatility rising," said Takuya Kanda, general manager atGaitame.Com Research Institute.

"The bounce by Treasury yields is another factor supportingthe dollar. The recent drop by the 10-year yield seemedoverdone, and with Fed's Powell not providing clear hints of arate cut this year, the rebound in yields could continue for awhile."

Federal Reserve Chair Jerome Powell said on Monday that itwas premature to make a judgement about the impact trade andtariff issues could have on monetary policy. urn:newsml:reuters.com:*:nL2N22W1MC

The 10-year Treasury note yield US10YT=RR extended itsovernight rebound and brushed an eight-day high of 2.428%. Theyield had dropped to 2.354% last week, its lowest since March28, after weak U.S. retail sales data increased rate cutexpectations.

"Among industrialised nations, only Italy has a higher10-year yield than the United States. Under such conditions,buyers have little choice but to turn to the dollar," saidDaisuke Karakama, chief market economist at Mizuho Bank.

The 10-year Italian government bond IT10YT=RR yielded2.705%, driven up by domestic political uncertainty and thecountry's rising debt. The 10-year German and Japanese yieldsstood at minus 0.088% DE10YT=RR and minus 0.05% JP10YTN=JBTC , respectively.

The euro was flat at $1.1165EUR= after slipping to$1.1150 the previous day, its lowest since May 3. The singlecurrency is expected to remain on a nervous footing through theMay 23-26 European parliamentary election.

The dollar was 0.15% firmer at 110.195 yenJPY= , intouching distance of a two-week high of 110.320 scaled theprevious day.


The Australian dollar AUD=D4 was 0.25% lower at $0.6891,its earlier advance fizzling out after Reserve Bank of AustraliaGovernor Philip Lowe said on Tuesday that the central bank willwill consider the case for lower interest rates at its Junepolicy meeting. urn:newsml:reuters.com:*:nS9N21I00V

A cut would be the first since the RBA's last easing to arecord low 1.50% in August 2016.

The Aussie had gained nearly 0.6% the previous day on asurprise election win by the country's conservative government.Investors had regarded the opposition Labor Party's economicpolicies as less business-friendly, and their relief at Labor'sunexpected defeat drove a rally in Australian markets. (Editing by Simon Cameron-Moore) ((shinichi.saoshiro@thomsonreuters.com; Reuters Messaging:shinichi.saoshiro.reuters.com@reuters.net))

This article appears in: Politics , Stocks , World Markets
Referenced Symbols: EUR

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