Calmer bond market, little balm for the unloved yen

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A Japanese thousand yen banknote, macro close-up with a European five euro banknote

Vitoria Holdings LLC

The U.S. dollar found some support in Asia on Thursday as commodity currencies paused after a strong rally led by higher export prices, while a rally in the U.S. bond market did little to comfort the yen in trouble.

The Australian and New Zealand dollars hovered just below multi-month highs and the euro held steady at $1.0989 after a modest drop overnight.

The yen hit a six-year low at 121.41 to the dollar on Wednesday and was pinned near that level at 121.25 in morning trade as investors expected the Bank of Japan to be on the back foot. trails the policy tightening of the other major inflation-fighting central banks.

An increasingly hawkish US Federal Reserve further widened that policy gap with the Bank of Japan, although even an overnight stabilization in the Treasury market after a few sharp selling sessions didn’t seem to help the yen much.

“The fundamental drivers for the dollar/yen are now US rates as well as Japan’s current account deterioration due to high oil prices,” said Shinichiro Kadota, senior FX strategist at Barclays in Tokyo.

“From a technical standpoint, around 121.7 was the early 2016 high, so that would be the next key target in the very short term, but if we go above that, 125 could be in focus.”

Benchmark 10-year Treasuries, which have been battered by a fresh round of bets on aggressive US rate hikes, calmed down overnight and yields fell 9 basis points (bps) – although they are still up over 50 bps this month.

Elsewhere, the Aussie dollar held steady at $0.7494 after a brief trip above $0.75 overnight. The New Zealand dollar was down 0.2% at $0.6960.

The pound slid overnight and was slightly softer on Thursday at $1.3187 even though February inflation was a little warmer than expected.

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