Dollar gains traction as trade fears knock bounding Aussie back

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SINGAPORE/TOKYO: The dollar found some footing on Tuesday, rising against tearaway commodity currencies for the first time in June as investors paused to take profits. However, a stronger yen pointed to some trepidation over the U.S. Federal Reserve’s next move at its two-day meeting starting later in the day.
The Australian dollar AUD=D3, which touched a 10-month top of $0.7043 early in the Asia session, retreated 1% to $0.6948 after China’s education ministry warned students to carefully consider studying there amid tension between the trading partners.
The kiwi NZD=D3 also pulled back after hitting a four-and-a-half-month high on the first morning since New Zealand ended all social restrictions – save for its closed borders – after the nation declared it was free of the coronavirus.
That has the Antipodean pair snapping nearly two weeks of gains that had propelled them some 4% or more higher this month.
“There is discomfort that the glass has gone from half-full to overflowing,” DBS Bank analysts said in a note. “If dollar/yen returns lower into 106-108…it could herald some hiccups in the seemingly unstoppable risk rally.”
The yen JPY= sat on the edge of that range at 107.97 per dollar, gaining as investors weighed the possibility of stepped-up bond buying – or even simply a very dovish outlook – from the Fed.
“Japanese names have been very active since Monday in dollar/yen, trying to trade off the chance of some kind of yield-curve control from the Fed,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
“I personally don’t think yield curve control is necessary now, but the dollar is under clear selling pressure.”
Elsewhere the Chinese yuan CNH=D3 gave back its overnight gains, while other moves were mostly held in check as markets wait for the outcome of the Fed Meeting.
The pound GBP= edged up to a three-month high before retreating to $1.2700. The euro EUR= last sat steady at $1.1272.
A statement from the Fed is due at 1800 GMT on Wednesday followed by a news conference half an hour later.
It is not expected to change interest rate settings though in recent days futures pricing shows investors have abandoned expectations of rates dipping below zero next year.
The latest round of exuberance, which continues to drive stock markets higher, was last week’s U.S. jobs data for May.