The U.S. dollar held near a seven-week peak on Thursday, after President Joe Biden and top U.S. congressional Republican Kevin McCarthy worked towards avoiding a damaging debt default, while the Aussie dollar slipped after disappointing jobs data.
Biden and McCarthy on Wednesday underscored their determination to strike a deal soon to raise the government’s $31.4 trillion debt ceiling, having agreed a day earlier to negotiate directly after a months-long standoff.
While the upbeat meeting helped calm fears of an unprecedented American debt default, a cautious air tempered risk-taking.
U.S. Treasury yields stayed elevated in Asia trade after rising in the previous session, as investors sold off the safe-haven bonds in the wake of the positive signs on the debt ceiling negotiations. Yields rise when bond prices fall.
The pop up in Treasury yields helped lift the U.S. dollar. Against a basket of currencies, the dollar index firmed near Wednesday’s seven-week peak and last stood at 102.92.
The euro languished near the previous session’s over six-week low and last bought $1.0833, while sterling fell 0.09% to $1.2476.
“We got some positive headlines over the debt ceiling negotiations … so that obviously supported market sentiment,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) (CBA). “As a result, yields have risen and equities also posted some solid gains.”
The two-year Treasury yield was last at 4.1543%, having risen as much as 10 basis points in the previous session, while the benchmark 10-year Treasury yield last stood at 3.5660%.
Early market action in Asia was partly led by the Aussie dollar, after data on Thursday showed that Australia’s employment unexpectedly dipped in April, following two months of outsized gains. The jobless rate also ticked up, in a sign that the red-hot labour market might be cooling.
The Aussie slipped about 0.4% after the data release and was last 0.16% lower at $0.66485.
“Whilst employment figures have deteriorated slightly, the (Reserve Bank of Australia) will still consider employment to be tight. And that leaves the potential for another hike or two at some point in future, unless inflation falls faster than they currently anticipate,” said Matt Simpson, senior market analyst at City Index.
Elsewhere, the dollar rose to a two-week high of 137.745 yen, extending Wednesday’s nearly 1% gain against the Japanese currency.
“Dollar/yen continues to be the market’s favourite pair of risk sentiment, so on the back of some positive developments on the debt ceiling negotiations, we saw dollar/yen unwind some of the losses recently,” said CBA’s Kong.
The kiwi rose 0.18% to $0.6259.
New Zealand on Thursday announced a worse-than-forecast budget deficit as a slowing economy and a lower tax take hit its coffers, leaving the Labour government walking a tightrope as its spending plan is expected to fan inflationary pressures.
In Asia, the Chinese yuan slumped to its lowest level against the dollar since December, having weakened past the key 7 per dollar level on Wednesday for the first time in five months, amid geopolitical tensions and more signs of China’s post-COVID recovery losing steam.