The dollar eased versus the yen on Thursday as a recent rally tied to bets on another US interest rate hike this year lost steam, while the New Zealand dollar rose after its central bank stopped short of aggressively trying to talk down the currency. The New Zealand dollar was the big mover during Asian trade, rising 0.4 percent on the day to $0.7248, edging back in the direction of a four-month peak of $0.7320 set last week. The kiwi rose after New Zealand’s central bank played down the recent rise in the currency, while it kept interest rates steady at record lows as analysts had widely expected.
“The main takeaways from the statement were pretty much in line with the last statement. They’re still optimistic and positive on the medium-term growth outlook,” said Peter Dragicevich, G10 FX strategist for Nomura in Singapore. “It could be some people were looking for the RBNZ to be a little bit more forceful in their rhetoric around the exchange rate given how it’s rallied the last few weeks,” he said, adding the absence of such jawboning probably helped give the kiwi a lift.
The US dollar eased 0.2 percent against the yen to 111.15, pulling away from a three-week high of 111.79 yen reached on Tuesday. “Risk aversion arising out of ongoing decline in oil prices is one of the factors explaining the move in dollar/yen,” said Christopher Wong, senior FX strategist for Maybank in Singapore. A recent narrowing of the U.S.-Japan 10-year yield differential, was also weighing on the dollar, Wong said.
The U.S. 10-year bond yield is now 209 basis points above its Japanese counterpart, compared to levels around 237 basis points seen in the early part of May. “Yield differentials should continue to drive dollar/yen direction,” Wong said, adding that a pick-up in U.S. inflation data is needed for markets to price in higher U.S. Treasury yields and lift the dollar. Brent crude oil futures eased 0.1 percent after sliding 2.6 percent in the previous session.
The dollar index, which measures the greenback against a basket of six major currencies, was marginally weaker at 97.504, having retreated from a one-month high of 97.871 set on Tuesday. The euro was little changed at $1.1168. Last week, the Federal Reserve, as expected, raised key borrowing costs by a quarter point to 1.00-1.25 percent, while Fed Chair Janet Yellen downplayed recent signs of inflation softening.
Sterling held steady at $1.2670, after having risen 0.3 percent on Wednesday when the Bank of England’s chief economist, Andy Haldane, said he expected to back a British rate increase this year.