SINGAPORE, May 18, 2010 (Reuters) – The U.S. dollar held to a seven-week high on Thursday, after President Joe Biden and top U.S. Republican Rep. Kevin McCarthy worked to avert a damaging debt deficit, while the Aussie dollar fell following disappointing jobs data.
Biden and McCarthy on Wednesday emphasized their commitment to a deal soon to raise the $31.4 trillion debt ceiling, a day before agreeing to negotiate directly after months of wrangling.
While this favorable meeting helped calm fears of an unprecedented U.S. debt default, the air of caution carried risks.
U.S. Treasury yields rose in Asian trade last session as investors sold safe-haven bonds following positive signs on debt ceiling talks. When bond prices fall, yields rise.
A surge in Treasuries helped push the US dollar higher. Among a basket of currencies, the dollar index hit a seven-week high on Wednesday, ending at 102.92.
The euro hit a more than six-week low last session and finally traded at $1.0833, while sterling fell 0.09 percent to $1.2476.
“We’ve had some positive headlines on the debt ceiling negotiations … so that clearly supports market sentiment,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (CBA). “As a result, yields rose and stocks posted some strong gains.”
The two-year Treasury yield was last at 4.1543%, up 10 basis points from the previous session, while the benchmark 10-year Treasury yield was last at 3.5660%.
Early market action in Asia was led in part by the Aussie dollar, after data on Thursday showed Australian employment unexpectedly fell in April, snapping the biggest two-month gain. The unemployment rate also rose, a sign that the red-hot job market is slowing.
The Aussie slipped about 0.4% after the data release and was last down 0.16% at $0.66485.
“Even though employment figures are falling slightly, (the Reserve Bank of Australia) still sees employment as tight. And that leaves the possibility of another hike or two at some point in the future, unless inflation falls faster than currently expected,” he said. Matt Simpson, senior market analyst at CitiIndex.
Elsewhere, the dollar rose to a two-week high of 137.745 yen, extending a nearly 1% gain against the Japanese currency on Wednesday.
“Dollar/yen remains the market’s favorite risk factor, so we’ve seen dollar/yen unwind some recently on the back of some positive developments in debt ceiling negotiations,” said CBA’s Kong.
The kiwi rose 0.18% to $0.6259.
New Zealand on Thursday reported a worse-than-forecast budget deficit as the economy slumped and lower tax payments weighed on the coffers, as the Labor government’s spending plan is expected to boost inflation.
In Asia, geopolitical tensions and signs that China’s post-Covid recovery is losing steam saw the Chinese yuan weaken against the dollar to its lowest level since December, weakening the dollar’s 7 key for the first time in five months on Wednesday. .
Reporting by Shri Navaratnam Editing by Rae Wee
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