Safe-haven dollar sinks as Asian equities rally; Aussie, yuan jump

The safe-haven dollar slid to a three-week low versus major peers on Tuesday amid improved risk sentiment as Asian equities followed U.S. tech shares higher, and on signals China’s property market woes will be contained.

The risk-senstive Aussie dollar jumped, along with the Chinese yuan.

The dollar index, which measures the greenback against six peers, sank as low as 93.641 for the first time since Sept. 28, breaking below its recent range. It was last 0.26% lower at 93.690.

An index of Asia-Pacific shares advanced about 1%, led by a rally in tech stocks. Chinese blue chips also jumped about 1%.

Fears about contagion from property giant China Evergrande’s debt troubles receded after some of its peers made bond coupon payments this week, and policymakers said late last week that the situation was controllable.

The onshore yuan jumped as high as 6.4105 per dollar, the strongest since June 16, while in offshore trading it reached 6.3975, also the highest since June 16.

The Aussie rose as high as $0.7474 for the first time since Sept. 3, even after minutes of the Reserve Bank of Australia’s September meeting showed that policymakers are concerned monetary tightening could harm the labour market.

Just a week ago, the dollar index reached a one-year high of 94.563 as fears of stagflation drove investors to safe havens, as well as on bets the Federal Reserve would begin tapering its monetary stimulus as soon as next month, followed by interest rate increases next year.

With Fed tightening bets already priced in, the market is now raising wagers for policy normalisation elsewhere, with Bank of England (BoE) Governor Andrew Bailey saying on Sunday the central bank would have to act to counter rising inflation risks, while data in New Zealand on Monday showed the fastest consumer-price inflation in more than a decade.

Britain and New Zealand led a rise in short-term bond yields globally overnight, with rates in Europe and Australia climbing comparatively more than those in the United States, pressuring the dollar.

“We still consider USD can resume its uptrend,” Commonwealth Bank of Australia strategist Kim Mundy wrote in a client note.

“Medium‑term inflation pressures are building in the U.S. and as a result, we expect U.S. Fed Funds futures to start pricing a more aggressive rate hike cycle.”

Sterling rose as high as $1.3778 for the first time since Sept. 17.

The euro advanced as far as $1.1658, a level not seen since Sept. 29.

Even against the safe-haven yen, the dollar retreated 0.3% to 113.975, further falling back from the almost three-year high of 114.47 touched on Friday.

The New Zealand dollar rose as high as $0.7149 for the first time since Sept. 14.

Investors will have a chance to hear from a range of central bank officials on Tuesday, including BoE governor Bailey, Bank of Finland governor Olli Rehn, European Central Bank chief economist Philip Lane, and Fed governor Christopher Waller.

“The sense that ‘transitory’ inflation will last longer than previously thought has been the main catalyst” for moves in global yields, as “the market re-calibrated rate hike expectations in most jurisdictions,” Westpac strategists wrote in a research note.

However, the United States is likely to be insulated from the energy market bottleneck that is “casting an ongoing cloud over rebound prospects in Europe and China,” and that “should leave yield spreads at the front end continuing to drift in the USD’s favour,” they said, adding that pullbacks in the dollar index should be limited to 93.70.

Still, Westpac remains bullish on New Zealand’s kiwi dollar – which isn’t part of the dollar index – targeting a climb to $0.74 by year-end, and recommending buying any dips to $0.6985.

In cryptocurrencies, bitcoin rose as high as $62,991.93 for the first time since mid-April, closing in on the all-time high of $64,895.22 reached that same month.