Dollar shines against battered yen; Aussie dragged by jobs data, China woes

By Rae Wee

SINGAPORE (Reuters) – The Dollar pushed the yen deeper into intervention territory on Thursday as a resilient U.S. economy underscored the need for higher-for-longer interest rates, contrasting with a still strikingly dovish Bank of Japan.

The Australian dollar sank to a nine-month low, taking its New Zealand counterpart along with it, after data showed that Australia’s employment unexpectedly fell in July while the jobless rate ticked higher.

The yen weakened to 146.565 per dollar, its lowest level since November, having come under renewed pressure as a result of interest rate differentials between the U.S. and Japan’s ultra-low rate environment. It last bought 146.37 per dollar.

The Japanese currency has come under close watch since it touched the key 145 per dollar level for the first time in about nine months last Friday, crossing into a zone that sparked an intervention by Japanese authorities in September and October last year.

“That sharp rise in dollar/yen definitely has increased the risk that the Japanese authorities will have to step into the FX market again to support the yen,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

Meanwhile, the dollar has drawn support from a recent run of resilient U.S. economic data, which reinforced the view that interest rates will remain at restrictive levels for some time.

Data on Wednesday showed that U.S. single-family home building surged in July and permits for future construction rose, while a separate report revealed production at U.S. factories unexpectedly rebounded last month.

“We’ve got the U.S. staying really resilient still, under the weight of high interest rates,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

“Even though inflation has come down a long way, it is still some way away from (the Fed’s) 2% target, so I think the FOMC will have to be patient and maintain monetary policy at a restrictive level in order to win that last mile against inflation.”

Minutes of the Fed’s July policy meeting showed officials were divided over the need for more rate hikes last month, citing the risks to the economy if rates were pushed too far.

Against a stronger greenback, the euro fell to a six-week low at $1.0862, while sterling dipped 0.1% to $1.2720.

Despite a sharp drop in Britain’s headline inflation rate, key measures of price growth monitored by the Bank of England failed to ease in July, data on Wednesday showed.

“We expect 25-basis-point rate hikes in both September and November, for a peak policy rate of 5.75%,” said Wells Fargo economist Nick Bennenbroek of the Bank of England’s monetary policy outlook. “Our view remains for slower UK growth and, eventually, a mild UK recession.”

IN THE DOLDRUMS

The Australian dollar was last 0.5% lower at $0.63925, having earlier tumbled more than 0.9% to a trough of $0.6365 following the employment data release.

The softer reading stoked speculation the Reserve Bank of Australia (RBA) might be done hiking interest rates.

The kiwi was similarly yanked to a low of $0.5903, with both currencies touching their weakest levels since November.

“Cracks are finally appearing in the employment data, and that should clear up any doubt over whether the RBA is done hiking,” said Matt Simpson, senior market analyst at City Index.

“They’re done at 4.1% as far as I’m concerned now, with persistently weak data from China and easing from the (People’s Bank of China) adding to the case of a peak rate.”

The two antipodean currencies, often used as liquid proxies for the yuan, have also taken a beating over the past few sessions as a result of the darkening outlook over China’s economy.

The offshore yuan hit a fresh nine-month low of 7.3490 per dollar, while its onshore counterpart similarly weakened to a nine-month trough of 7.3174 per dollar.

“Given the sharp deterioration in the Chinese economy … there’s now a higher sense of urgency among policymakers, so I think there is now a higher likelihood that they will be forced to announce some more material fiscal stimulus package,” said CBA’s Kong.

China’s major state-owned banks were seen selling U.S. dollars to buy yuan in onshore and offshore foreign exchange markets this week during London and New York trading hours, people with direct knowledge of the matter told Reuters, in an attempt to slow the yuan’s depreciation.

The U.S. dollar index touched a two-month high of 103.59.

(Reporting by Rae Wee; Editing by Gerry Doyle and Kim Coghill)