Greenback extends rebound as stimulus hopes stall quick stakes

© Reuters. FILE PHOTO: Illustration photo of a US five dollar bill

By Tom Westbrook

SINGAPORE (Reuters) – The dollar extended a rally on Monday as strong gains in US yields and hopes of further stimulus to boost the world’s largest economy led some investors to soften bearish bets and move the currency further from recent Subtract multi-year lows.

President-elect Joe Biden, who will take office on Jan. 20 with Democrats who can control both Houses of Congress, has promised “trillions” in additional spending on pandemic relief.

This has boosted the yield on 10-year U.S. benchmark debt this year by more than 20 basis points to 1.1187%, helping the dollar hit a monthly high of 104.095 yen on Monday as better interest rates took some dollar short positions gave a break.

The Australian and New Zealand dollars each fell more than 0.5% against the dollar to one-week lows, while the euro and sterling lost 0.3% to hit two-week lows.

The euro was last traded at $ 1.2183 after rising to $ 1.2349 last week.

“The underlying source of the revival was the aftermath of the Senate elections and markets, where we were expected to provide much more financial support to the US economy,” said Ray Attrill, head of FX strategy at National Australia Bank (OTC 🙂 .

“Everyone is wondering if this will change the weaker dollar narrative. So I think we’re getting some continuation of what we see on Thursday and Friday.”

Attrill said he is not buying a rebound just yet as it usually takes a while for relative returns to shift in currency markets as additional stimulus is by no means certain and other factors weighing on the dollar persist.

But, given betting against the dollar, such a crowded trade, the extent of the sell-off in the bond market since the Democrats took control of the Senate last week has been enough to slow the steep and steady decline since March last year.

However, the more than 12% loss from a three-year high in March has rebounded 1.2% from a nearly three-year low last week to 90.291 on Monday.

The Australian dollar continued to pull back from last week’s more than two-year high of $ 0.7819 and traded 0.7% lower at $ 0.7712 on Monday, unaffected by another solid month of local retail sales.

The decline was down 0.6% to $ 0.7194, and dollar gains have been broad, albeit smaller, elsewhere in Asia.

The dollar rose 0.15% to 6.4746 yuan in offshore trading, hitting a two-week high of 1.3288 Singapore dollars. The baht, ringgit, and rupiah also slipped.

“The weaker dollar narrative and widespread ebullience for emerging markets were challenged earlier in the year when we forecast what could lead to a rethinking of consensus business at least in the coming week.” Barclays (LON 🙂 Analysts said in a note.

“We hold to our disagreeable view that the dollar is likely to benefit from better growth and a better return on investment as the year progresses.”

Chinese inflation numbers, due at 01:30 GMT, will be monitored for insight into China’s economic recovery. The Chinese trade numbers are due later in the week along with US retail sales, sentiment and production data.

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