Australian ascendancy before RBA; yen under pressure from rising US yields

TOKYO: The Australian dollar rose on Tuesday ahead of an expected half-point hike in the Reserve Bank’s key rate, while the yen slipped against the greenback amid rising US Treasury yields.

The Australian and New Zealand dollars were also supported by signs that the United States may soon ease tariffs on major trading partner China.

The Australian currency climbed 0.29% to $0.6888, while the New Zealand kiwi rose 0.21% to $0.6222.

Meanwhile, the US dollar rose 0.35% to 136.165 yen, supported by a strong rebound in the 10-year Treasury yield, which jumped to 2.9780% in Tokyo on Tuesday, from the lowest since May at 2.7910%. Friday.

There were no trades in Treasuries on Monday as US markets were closed for the July 4 holiday, which also led to weak trading in the currency market.

Economists polled by Reuters expect the Reserve Bank of Australia to register another half-percentage-point hike in interest rates on Tuesday as it struggles to rein in inflation at its highest level in two decades, matching the raise she got last month in a hawkish surprise.

The Aussie was also buoyed by a Wall Street Journal report that the White House would announce an easing of some Chinese tariffs later this week in a bid to dampen high inflation, analysts said.

The dollar index, which measures the dollar against six major peers including the yen, was roughly flat at 105.13 after ending largely unchanged on Monday.

On Friday, it climbed as high as 105.64, threatening the two-decade high of 105.79 hit in mid-June.

The euro, which is the most heavily weighted in the index, rose 0.13% to $1.0435 after ending roughly flat on Monday. Over the past two months, it has bottomed out around $1.035, levels not seen since the start of 2017.

The euro was supported overnight by a rise in regional yields after Bundesbank chief Joachim Nagel said the very dovish stance of the European Central Bank (ECB) would be “quickly abandoned” and that a restrictive policy might be necessary to reach the inflation target.

The ECB is preparing to raise interest rates for the first time in a decade later this month.

The political outlook may not support the euro longer term, National Australia Bank markets economist Tapas Strickland wrote in a note to clients.

“Europe remains caught between the Russian-Ukrainian crisis and the weakening of the global economy,” he said.

“Given the difficult situation in Europe, it is difficult to see a sustained rally in the euro, which could maintain the strength of the dollar for longer.”