Economic news

Dollar Falls as Selling Pressure Builds on Multiple Fronts

SINGAPORE/Tokyo (Reuters) - The dollar extended its fall to hit fresh lows against a range of currencies on Tuesday, after a triple blow of retreating yields, soft U.S. economic data and a dip in safe-haven demand exerted broad selling pressure.

The yuan firmed to 6.9246 per dollar, hitting a level unseen since March 9, despite the Trump administration flagging a further tightening of restrictions against Chinese tech gear maker Huawei.

Against the Swiss franc, the dollar fell more than 0.1% to fresh 5-1/2 year low of 0.9049.

“The background factor for the moves we’re seeing today is the overall weakness of the dollar,” said Shinichiro Kadota, senior strategist at Barclays. “And the Swiss franc strengthened because of a euro-led decline in the U.S. dollar since July.”

The greenback is also poised to re-test multi-month or multi-year troughs against the euro, pound and Aussie made earlier in the month.

The euro last sat at $1.1891, just below a recent two-year high of $1.1916.

The Aussie rose 0.12% to $0.7225, near an 18-month top of $0.7242 hit on Aug. 7, as the Reserve Bank of Australia reaffirmed the outlook of steady policy.

The Aussie’s gains were capped by news China had begun an anti-dumping investigation into imports of wine from Australia.

Investors have been relieved by a delay in the review of the U.S.-China trade deal this week, which has left the agreement standing and reinforced a belief the trade relationship can hold even amidst conflict on multiple other fronts.

A fresh rally in tech stocks added to the positive mood, and together with a pullback in U.S. yields and a weak reading in a U.S. manufacturing survey has many traders sticking to their bearish convictions on the dollar.

Net bearish bets on the U.S. dollar grew to their largest since May 2011 last week and spot trade in recent days suggest the position has only grown further since.

“Extended short dollar positions risk a sharp pull back if the dollar downside stalls further, but for now the negatives for the dollar are mostly still in place,” said analysts at Singapore’s OCBC Bank.

“We are reduced to staying in the game while the music is playing.”

On the data front, the New York Fed’s Empire State business conditions index tumbled to 3.7 in August from 17.2 in July - far lower than the 15 points forecast by a Reuters survey.

Delinquency rates for residential mortgages also posted the largest quarterly increase on record.

“A high delinquency rate for an extended period can impair the banking system,” said Commonwealth Bank of Australia currency analyst Joe Capurso.

“An impaired banking system could hold back the U.S. economic recovery like it did in the aftermath of the (2008 crisis),” he said.

The Japanese yen rose back past 106-per-dollar to 105.63 after a 2.6 basis point drop in benchmark U.S. 10-year government bond yields overnight. [US/]

The British pound last sat at $1.314 as investors watch the latest round of Brexit negotiations, with the future of London's financial institutions' access to the European market in focus.

Against a basket of currencies the dollar sat at an eight-session low of 92.634.

Among G10 currencies, the kiwi was the laggard as New Zealand's largest city remains under lockdown and anticipation of future monetary easing weighs on the currency.

It last bought $0.6545 and traders said bets on the kiwi dropping had supported the Aussie as investors sought exposure to the Aussie/kiwi cross, which is trading at a two-year peak.

“The move has been one way traffic,” said Chris Weston, head of research at Melbourne broker Pepperstone, who is holding for the ride even though the pair has hit his price target of NZ$1.10 per Aussie.

Reporting by Tom Westbrook; Editing by Shri Navaratnam and Lincoln Feast.

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