The dollar hovered below recent peaks on Tuesday as investors looked to US policymakers for clues on whether they may seek to slow rising yields, while the New Zealand dollar dropped after housing reforms cooled policy-tightening expectations.
The Turkish lira also showed some sign of stability following a 7.5 per cent dive on Monday after President Tayyip Erdogan sacked a hawkish central bank chief, but markets’ relief was offset by worries about fresh lockdowns in Europe.
The dollar crept 0.1 per cent lower against the safe-haven yen to 108.74 yen and was steady at $1.1928 per euro, while making advances against the kiwi, Aussie and sterling.
The New Zealand dollar hit a three-month low after the government introduced taxes to curb housing speculation, a move investors reckoned could allow the central bank to hold interest rates lower for longer with less risk of a property bubble.
“The Reserve Bank (of New Zealand) will … likely revise down its house price forecasts,” ANZ Bank analysts said in a note. “This will add caution around official cash rate hikes via less-than-otherwise housing-induced domestic momentum.”
The kiwi lost as much as 1 per cent and traded at $0.7093 during the Asian afternoon. The move also rallied Kiwi bonds, especially at the short end, and it pulled the Australian dollar about 0.4 per cent lower to $0.7711.
Sterling slipped almost 0.2 per cent to $1.3845 and oil linked currencies also fell with crude prices on worries that anew wave of infections will bring more lockdowns in Europe.
The Canadian dollar dipped to C$1.2544 per dollar and the Norwegian crown fell about 0.2 per cent as well, as benchmark Brent crude futures dropped more than 1 per cent.
Germany is extending its lockdown until April 18 and calling on citizens to stay home over Easter and Chancellor Angela Merkel warned: “we are now basically in a new pandemic,” as more transmissible virus variants sweep the continent.
The broad US dollar index, which measures the greenback against a basket of six major currencies stood almost flat in Asian trade at 91.831 after a slip of 0.32 per cent on Monday.
The pause follows a 2.0 per cent gain so far this quarter, as speedy rollouts of COVID-19 vaccines in the United States and the Biden Administration’s $1.9 trillion stimulus are seen lifting growth, driving up bond yields and drawing investors.
The dollar’s attraction was further boosted as US Federal Reserve officials appeared to tolerate recent rises in yields -turning the focus now to Congressional testimony by Fed Chair Jerome Powell and Treasury Secretary Janet Yellen later on Tuesday.
“US bond yields could rise further as the market may tryto find out where the pain threshold for the Fed is,” said Minori Uchida, chief currency analyst at MUFG Bank.
For now, though, the 10-year US bond yields eased to1.668 per cent after peaking at 1.754 per cent on Thursday, keeping the dollar in check.
“The market is interested in how far US bond yields will rise. While top Fed officials have said they will keep interest rates low through 2023, there could be dissenting voices,” said Yukio Ishizuki, senior strategist at Daiwa Securities.
The Turkish lira traded at 7.8500 per dollar after a steep fall on Monday to as low as 8.485, near its record low of 8.58.
The lira’s massive fall, however, has done little so far to shake investors’ confidence in emerging market currencies as the event, the third firing of a central bank chief by Erdogan since2019, was not perceived to hold wider risk.
The MSCI emerging market currency index dipped only slightly on Monday and steadied on Tuesday. China’s yuan also held steady despite US and European sanctions, and traded at 6.5095 per dollar.
Bitcoin stood at $54,586, having fallen almost 5 per cent on Monday to trade near last week’s low of $53,221.