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Dollar choppy after Fed statement, Evergrande exhale lifts risk-sensitive currencies

(Updates with Fed policy statement)

By Chuck Mikolajczak

NEW YORK : The U.S. dollar was choppy on the heels of the latest policy announcement by the Federal Reserve on Wednesday, while risk-sensitive currencies such as the Australian dollar and Chinese yuan strengthened after China's Evergrande said it would make a bond coupon payment.

The Federal Reserve on Wednesday cleared the way to reduce its monthly bond purchases "soon" and signaled interest rate increases may follow more quickly than expected, with half of the 18 U.S. central bank policymakers projecting borrowing costs will need to rise in 2022.

"The tapering of quantitative easing seems very likely now in November but this was something of a given and remains couched in a lot of qualifying criteria in the event that various risks emerge, whether it is the debt ceiling debate, COVID outlook, the China property market intervening," said Steven Violin, portfolio manager at F.L.Putnam Investment Management Company in Wellesley, Massachusetts.

The dollar index rose 0.094per cent, alternating between gains and declines after the announcement, with the euro down 0.1per cent to US$1.1711.

Property giant and Asia's biggest junk bond issuer Evergrande said it "resolved" one payment due on Thursday via a private negotiation, easing concerns of default and possible contagion risk, while the People's Bank of China injected 90 billion yuan into the banking system to support markets.

"Being able to make tomorrow's bond coupon payment, that definitely lifted risk sentiment overnight and you saw a typical follow-through reaction in risk currencies, so Canadian dollar high, Aussie dollar higher, Kiwi dollar higher - that was kind of an understandable reaction," said Erik Bregar, an independent FX analyst in Toronto.

Still, uncertainty remains whether the developer will be able to pay the coupon on its offshore dollar bonds, due on Thursday.

The Australian dollar rose 0.33per cent versus the greenback to US$0.726 after rising as much as 0.49per cent to US$0.7268 while the Canadian dollar rose 0.58per cent versus the greenback to 1.27 per dollar.

The offshore Chinese yuan strengthened versus the greenback to 6.4628 per dollar.

The safe-haven Japanese yen weakened 0.50per cent versus the greenback to 109.78 per dollar in the wake of the Bank of Japan's decision to keep policy on hold.

Sterling was last trading at US$1.3637, down 0.16per cent on the day ahead of a policy announcement by the Bank of England on Thursday, with expectations for a rate hike being pushed down the road by investors.

In cryptocurrencies, Bitcoin last rose 6.93per cent to US$43,409.48 following three straight days of declines.

(Reporting by Chuck Mikolajczak; Editing by Will Dunham and Andrea Ricci)

Source: Reuters

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