Dollar firms on softer yen, lacks energy elsewhere

EghtesadOnline: The dollar crept ahead in Asia on Monday after signs of wage pressure in the December U.S. jobs report proved enough to lift Treasury yields, but bulls remained wary of a sudden setback following last week's wave of profit-taking.

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09 January 2017

A holiday in Tokyo kept trading light and the dollar index was just 0.1 percent firmer at 102.33 .DXY, near the middle of last week's wide 101.30 to 103.82 range.

The dollar made more progress on a broadly softer yen, adding 0.5 percent to 117.43 JPY= and nearing near-term resistance at 117.77. Support was seen around 116.80/90, according to Reuters.

It had already recovered all the way from a 115.06 trough on Friday, but remains well short of the next major chart target around 118.60.

The euro EUR= was steady at $1.0530, after ricocheting between $1.0339 and $1.0621 last week, but also gained ground on the yen to 123.65 EURJPY=.

There were enough hints of inflationary pressure in Friday's mixed U.S. payrolls report to support the case for more interest rate hikes and reverse a down move in yields and the dollar.

Yields on U.S. 10-year notes US10YT=RR rose from 2.33 percent to 2.42 percent on the data. Yet that remained some way from the December peak of 2.64 percent, and the spread over German yields was also off its highs.

"It is interesting to note that while there has been some volatility in the meantime, U.S. equities, the USD, and 10-year yields are all sitting at roughly similar levels to when the Fed hiked nearly four weeks ago," analysts at ANZ said in a note to clients.

"It does look like markets are asking whether the reflation theme is now in the price, suggesting that something additional will be needed to set markets into new trading ranges."

The outlook for U.S. rates may become a little clearer when Federal Reserve Chair Janet Yellen appears at a webcast town hall meeting with educators on Thursday.

Two regional Fed presidents will speak later on Monday, and there are no less than five speeches lined up for Thursday. The main economic release of the week is not until Friday, when retail sales figures for December are out.

Dealers in Asia will also be keeping a wary eye on the yuan CNY= after Beijing engineered a sharp tightening in liquidity last week that squeezed speculators out of short yuan/long U.S. dollar positions.

China's central bank kept up the pressure on Monday, setting a firmer fix for the yuan than many had expected at 6.9262 per dollar, even though that was down from the previous fix.

Yet the defense is proving costly.

Figures out over the weekend showed China's foreign exchange reserves fell to nearly six-year lows in December as Beijing fought to stem an outflow of capital that could ultimately force another devaluation of the currency.