Dollar, yen rise as risk sentiment declines ahead of Fed
The U.S. dollar hovered near its strongest level since early April against the euro on Monday, as financial markets looked ahead to the Federal Open Market Committee (FOMC) meeting this week for clues on the timing of stimulus tapering.
TOKYO: The safe-harbour yen and dollar started the week firmer against riskier currencies like the Aussie as rising COVID-19 cases and a decline in Asian equities set a cautious tone ahead of the Federal Reserve's meeting this week.
The yen rose about 0.5per cent to 81.08 per Australian dollar on Monday, while the dollar gained 0.2per cent to US$0.7351 per Aussie, approaching an almost eight-month high of US$0.72895 reached last week.
Against the dollar, the yen added 0.2per cent to 110.32, helped by a decline in U.S. Treasury yields.
The euro rose 0.1per cent to US$1.17795, stabilizing after its drop last week to the lowest since early April at US$1.1752.
The dollar index, which measures the currency against six major peers, slipped slightly to 92.833 due to pressure from the euro and yen, but was still close to last week's 3-1/2-month high of 93.194.
It has gained nearly 4per cent from a recent low on May 25 as an improving U.S. economy bolstered the outlook for the Fed to start paring asset purchases as early as this year.
Commonwealth Bank of Australia projects the dollar can continue to strengthen this week on the possibility of the Fed moving a step closer to tapering at the conclusion of its two-day policy meeting on Wednesday.
"We expect the FOMC to drop 'substantial' from 'substantial further progress'," in its guidance on the necessary conditions for the labour market before removing monetary support, CBA strategist Joseph Capurso wrote in a client note.
"Removing 'substantial' will signal the FOMC believes it will soon be appropriate to taper asset purchases," setting up a possible announcement of a taper in September, he said.
The risk to such an outlook is the rise in COVID-19 cases in the United States, coming after the Fed at its last meeting on June 16 dropped a reference to the coronavirus as a drag on the economy.
"Overall, the Fed is expected to hold a rather neutral stance before the Jackson Hole symposium in late August, while risks are biased to dovish side given the Delta variant spread," Mizuho Bank strategist Ken Cheung wrote in a report.
The dollar index eked out a 0.2per cent gain last week, benefiting from a safe-haven bid on fears a surge in infections of the fast-spreading Delta variant could derail the global recovery, but paring those gains as strong U.S. earnings lifted stocks to record highs.
The risks from the Delta variant continue to rise globally, with top infectious disease official Anthony Fauci saying some Americans may need booster shots amid new mask mandates and a surge in new cases.
China reported its highest number of cases since the end of January, while new infections have also spiked in Japan, where Tokyo is currently hosting the Olympics.
Australia's most populous state of New South Wales, home to Sydney, reported a rise in new COVID-19 cases on Monday despite a weeks-long stay-at-home order.
Meanwhile, MSCI index of Asia-Pacific stocks excluding Japan sank 2per cent on Monday, as Chinese blue chips slumped 3.8per cent.
However, cryptocurrencies were buoyed on Monday after London's City A.M. newspaper cited an un-named "insider" on the weekend as saying that Amazon is looking to accept bitcoin payments by year-end.
The report followed Twitter boss Jack Dorsey's comment on Friday that the digital currency is a "big part" of the social-media firm's future.
Bitcoin extended its gains from near US$29,000 last week to push back to the cusp of US$40,000 on Monday for the first time since mid-June. It last traded about 8.5per cent higher at US$38,455.
Smaller rival ether was last up 6.8per cent at US$2,344.08, recovering from as low as US$1,717.17 last week.
Currency bid prices at 0605 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar US$1.1781 US$1.1769 +0.11per cent -3.57per cent +1.1785 +1.1764
Dollar/Yen 110.3150 110.5500 -0.25per cent +6.76per cent +110.5750 +110.2700
Euro/Yen 129.95 130.11 -0.12per cent +2.39per cent +130.1700 +129.8800
Dollar/Swiss 0.9186 0.9199 -0.13per cent +3.84per cent +0.9202 +0.9184
Sterling/Dollar 1.3753 1.3749 +0.04per cent +0.67per cent +1.3763 +1.3741
Dollar/Canadian 1.2583 1.2560 +0.18per cent -1.19per cent +1.2587 +1.2562
Aussie/Dollar 0.7351 0.7364 -0.16per cent -4.43per cent +0.7370 +0.7346
NZ 0.6965 0.6978 -0.14per cent -2.96per cent +0.6985 +0.6961
Tokyo Forex market info from BOJ
(Reporting by Kevin Buckland; Editing by Shri Navaratnam and Sam Holmes)