By Stanley White
TOKYO (Reuters) - The U.S. dollar fell against the Antipodean currencies and the British pound after surprising improvement in U.S. labour market data bolstered expectations for economic recovery, which reduced safe-harbour demand for the greenback.
The Australian and New Zealand dollars both rose to their strongest since January after data showed a smaller-than-expected fall in Chinese exports, which supports commodity currencies.
In contrast, the U.S. dollar traded near its highest in more than two months against the yen, supported by recent gains in long-term Treasury yields as investors await the outcome of a two-day U.S. Federal Reserve meeting ending on Wednesday.
Sentiment has improved dramatically in the currency market as traders look for signs of a rebound from the coronavirus outbreak as economies reopen from lockdowns, which has hurt the dollar and driven money into so-called risk-on trades.
"Commodities and emerging market currencies are clearly finding it easier to rise against the dollar on hopes of economic recovery, but it is a different story when it comes to the yen," said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.
"For dollar/yen the focus is more on yields, which is pushing the currency pair higher."
Japan's economy shrank less than initially estimated in the first quarter, revised data showed earlier on Monday, but the yen took the data in its stride.
The Australian dollar
The New Zealand dollar rose to $0.6537, the highest since Jan. 29, before settling at $0.6512.
New Zealand's Prime Minister Jacinda Ardern said on Monday that all coronavirus measures in the country will be lifted from Tuesday, barring border closure restrictions, as the virus had been eliminated from the country.
Against the pound
The dollar traded at 109.48 yen
Underpinning sentiment was a surprising recovery in U.S. employment in May after the economy suffered record job losses in April, data showed on Friday.
Some investors may avoid making big trades before the Federal Reserve meeting ending on Wednesday to see how Chairman Jerome Powell views a recent rise in 10-year Treasury yields and a steepening in the yield curve.
The onshore yuan
The pandemic first emerged in China late last year and has caused a sharp contraction in global economic activity, but many traders are now focused on the pace of recovery in the second half of this year.
Some analysts said there are still many risks to the outlook, including any second wave of infections, diplomatic tensions between the United States and China, and the U.S. presidential election later this year.
The euro (EUR=D3) traded at $1.1290 on Monday. The common currency is riding a wave of optimism after the European Central Bank said last week it will increase bond purchases to help the bloc's weakest economies.
Sentiment will face a test later on Monday with the release of data forecast to show that German industrial output fell the most on record in April.