Dollar rally pauses in Asia; NZD sinks on rate lull

By Ian Chua

SYDNEY (BestGrowthStock) – The U.S. dollar took a bit of a breather early in Asia on Thursday but stayed well supported thanks to higher Treasury bond yields, while the New Zealand currency slumped after dovish comments from the country’s central bank.

The 2-year U.S. note yield hit a 4- month high of 0.64 percent, though the 10-year yield stepped back a little to 3.27 percent from 3.33 percent.

The dollar closely tracked the moves in yields, jumping with the initial surge before steadying.

“Now we’ve seen yields jump sharply and arguably they look like they may have found a level where they may have reached a high point, perhaps that’ll cause the dollar rally to settle down,” said Greg Gibbs, strategist at RBS.

“But this time of year, you sense that people are squaring positions up. The market still has a few short dollar positions out there and this is adding to the excuse for the dollar to strengthen.”

Investors dumped U.S. Treasuries this week after a deal in Washington to extend tax cuts fueled concerns of inflation and a swelling budget deficit. Some analysts said the tax cuts could boost growth by as much as a percentage point next year.

The dollar was flat against a basket of major currencies at around 80.000 (.DXY: ), flirting with its 100-day moving average at 79.980, but struggling to break above the 80.00-81.00 area, which capped its November rally.

Against the yen, it traded at 84.03, little changed from late New York levels, where it hit a high of 84.31 on trading platform EBS.

For the near-term, resistance for dollar/yen is around 84.40, which will attract offers from Japanese exporters. A break above that level could see the pair extend gains toward 84.60, followed by 85.40 and then a retest of the September high around 85.95 yen, traders said.

The euro traded at $1.3250, after recovering from dip to a one-week low at $1.3177 on Wednesday. But its inability to hold gains above $1.3400 this week meant a probe lower was likely, with a sustained break of $1.3180 opening the way for a test of $1.3060/50.

The European Commission welcomed Ireland’s tough 2011 austerity budget, which received a first approval from parliament, opening the way for international loans to start flowing to Dublin.

In contrast, the New Zealand dollar dropped to a one-week low at $0.7437, shedding about half a cent after the Reserve Bank of New Zealand said it expected interest rates to rise less over the next two years than it had previously forecast.

The RBNZ left rates unchanged at 3.

“The kiwi sagged given the much watered down tightening bias,” said Annette Beacher, head of Asia-Pacific Research at TD Securities. “We can finally confirm that we are pushing out the next rate hike from March to July.”

That helped lift the Australian dollar to a three-month high on the kiwi around NZ$1.3146, though it fared less well against the U.S. dollar at $0.9775. Traders are bracing for labor force data due at 0030 GMT, which have had a habit of surprising on the upside.

The report is expected to show an increase of 19,000 jobs and a fall in the jobless rate to 5.2 percent from 5.4 percent. Any strength here would help offset a run of softer data recently.

Market attention, however, is turning to China, where speculation of an interest rate hike gained momentum after Beijing brought forward the release of November data, including the closely watched inflation figures to Saturday from Monday.

This could temper any enthusiasm for commodity currencies like the Aussie.

(Additional reporting by Wanfeng Zhou in New York; editing by Wayne Cole)

Dollar rally pauses in Asia; NZD sinks on rate lull