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Dollar Up, Boosted by Higher Yields and Rising Hopes of U.S. Recovery

ForexAug 11, 2020 10:05PM ET
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By Gina Lee – The dollar was up on Wednesday morning in Asia, with higher U.S. yields and rising hopes of a U.S. economic recovery from COVID-19 supporting the greenback.

Yields on 10-year U.S. debt saw their biggest gains in two months on Tuesday, attracting Japanese investors, ahead of a massive $38 billion auction later in the day.

“That is reflected in the rotation in equities into more cyclical sectors and plays into the idea that U.S. Treasury yields should be higher, reflecting that improvement in prospects for the global recovery... Dollar/yen is the most sensitive...but higher U.S. Treasury yields should in theory be broadly supportive for the dollar,” NAB senior FX strategist Rodrigo Catril told Reuters.

Meanwhile, uncertainty surrounding the latest U.S. stimulus measures capped the dollar’s gains, with investors looking to see if Congress can reach a consensus for the measures.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies gained 0.13% to 93.765 by 9:53 PM ET (2:53 GMT), and the USD/JPY pair was up 0.14% to 106.62.

The AUD/USD pair fell 0.13% to 0.7133 and the NZD/USD pair slipped 0.18% to 0.6564. with both Antipodean countries continuing their battle against COVID-19.

Australia saw consumer confidence collapse, with the Westpac consumer sentiment index diving 9.5% to 79.5 in August. The second largest city of Melbourne is currently under stage 4 COVID-19 restrictions, and the country reported the biggest daily rise in infections in three days on Wednesday.

Across the Tasman Sea, Auckland re-entered lockdown as four new cases, New Zealand’s first in 102 days, were reported. The Reserve Bank of New Zealand handed down its interest rate policy decision, which followed expectations and remained unchanged at 0.25%.

“It’s far too soon to say what the exact implications are, but the return of COVID-19 presents downside risk to the outlook... the (policy) committee can ill-afford to be complacent, and need to underscore that they will do what it takes. We thus expect a very dovish tone, which poses significant downside risks for the New Zealand dollar,” ANZ analysts warned in a note ahead of the decision.

The USD/CNY pair rose 0.22% to 6.9563 and the GBP/USD pair was down 0.10% to 1.3035. The GBP came under pressure after Tuesday's release of labor market data that missed expectations and indicated that British job losses were at their highest level in more than a decade last quarter.

Dollar Up, Boosted by Higher Yields and Rising Hopes of U.S. Recovery

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