Investing.com – The U.S. dollar held near a two-month high on Tuesday, maintaining its dominance over major rival currencies as surging U.S. Treasury yields and expectations for further Federal Reserve policy tightening continued to dictate the global exchange-rate tape.
The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.1% to 101.30 after touching an intraday peak of 101.33. The index remains on track to close out September with a 1.9% advance, anchored by a relentless sell-off in U.S. government debt that has lifted benchmark yields to multi-decade peaks.
The 10-year Treasury yield held near its highest level since July 2007 at 5.23%, while the 30-year yield hovered near 5.55% – its highest since 2004.
With money markets now discounting a better than 70% chance of a quarter-point Fed rate hike in October, cross-border yield differentials continue to favor the greenback across European and Asian trading sessions.
Aussie dollar hits 2-month low as RBA rate hike priced in
The Australian dollar traded under heavy selling pressure, sliding 0.4% to $0.6989 and breaching the critical $0.7000 psychological handle to touch its lowest level in nearly two months.
The currency’s drop came despite the Reserve Bank of Australia delivering a widely expected 25-basis-point increase in its cash rate to 4.60% – a 15-year high.
The RBA’s fourth rate increase this year was decided unanimously as Governor Michele Bullock warned that persistent underlying inflation, elevated energy costs, and weak productivity growth threaten price stability.
However, because money markets had fully discounted the policy move, foreign exchange desks focused on Australia’s eroding yield advantage against rising U.S. borrowing costs, leaving the Aussie vulnerable to further downside.
Yen weakens back toward 157.40 despite official intervention warnings
The Japanese yen gave back its earlier modest gains to trade around 157.41 per dollar, remaining pinned near multi-week troughs as the massive interest-rate gap between Japan and the United States continues to incentivize short positions.
The renewed weakness followed a brief rally to 156.51 on Monday after Japan’s top currency diplomat Atsushi Mimura warned traders to heed a “very clear” joint message from Tokyo and Washington regarding disorderly exchange-rate swings.
