Japanese yen dropped to its lowest in three months. Meanwhile Australian dollar — which is considered risk-sensitive — kept recovering from its one-month low as worries of contagion due to the Evergrande Group ebbed.
The drop in yen comes at a time when Japanese investor money is also flowing towards the more attractive US yields as rising commodity prices boosted the Aussie and Norway’s crown.
In expectations of the tightening of monetary policy in the US, US yields rose to their highest since July as the dollar floated in the center of its range in the past week against its competition.
As the developments in elections being held in Germany remained largely ignored, the euro saw minimal movement at $1.1724.
The Federal Reserve stated on Wednesday that it plans on trimming its monthly bond purchases near November followed by a rise in interest rates as almost half of the members of the Federal Open Market Committee forecasting a hike in the following year.
Analysts at Commonwealth Bank of Australia said “USD is likely to remain caught in the cross-currents of a more hawkish FOMC and fading concerns around a potential Evergrande default,”.
“Nevertheless, the risks are skewed to a firmer USD,” with any renewed Evergrande worries unlikely to trigger the level of market volatility of last week, they added.
Concerns over the Chinese top developer Evergrande potentially defaulting on its debt worth $305 billion has dominated trade the past few weeks, fears of that contagion are but some of those contagion fears are disappearing.
In addition to the net 320 billion yuan injected into the financial system last week, the People’s Bank of China floated another net 100 billion yuan ($15.47 billion) on Monday, which is the highest amount since January.
It is reported that in order to protect funds reserved for housing projects from getting diverted, a huge number of local governments in China have set up special custodian accounts for property projects associated with Evergrande.
The yen dropped as low as 110.81/dollar, similar to its value on July 7. On the other hand, the 10-year U.S. Treasury yield rose to its highest since July 2 at 1.466%.
The Aussie saw a rise from 0.37% to $0.7282.
Head of research at brokerage Pepperstone in Melbourne, Chris Weston noted,” The correlation between U.S. bonds yields and USDJPY has picked up,”.
“USDJPY looks a little stretched, so I’d be wary to chase here, but I would be looking for a re-test of 110.50 as a potential support zone within what is a progressively bullish trend.”
