The dollar eased from multi-year highs on Friday after a strong rally earlier in the week, although expectations that the Federal Reserve will need to hike more to curb inflation lifted Treasury yields and kept demand for dollars alive.
The dollar pushed the offshore yuan past the critical overnight $7 threshold for the first time in more than two years, with the yuan under pressure at 7.0032 in early Asian trade.
The land unit hovered dangerously close to the breakout point and last closed at 6.9971 per dollar.
The Australian dollar, often used as a liquid proxy for the yuan, hit a two-month low of $0.6685 on Friday.
The kiwi also fell to $0.5956, its lowest level since May 2020.
“I think part of it is, I think it’s a psychological level,” Ray Attrill, head of currency strategy at National Australia Bank, said of the relationship between antipodean currencies and the yuan’s fall.
“But I also think it’s been a big drop in oil prices as well as other commodities … the size of the movement in oil prices has obviously affected all the commodities or pro-cyclical currencies.”
Meanwhile, the euro was up 0.14% at $1.0008 and the pound sterling was up 0.02% at $1.1474.
The dollar fell 0.37% against the Japanese yen to 142.96, slightly helped by hopes of a potential currency intervention.
Traders are now turning their attention to next week’s series of monetary policy meetings by the Federal Reserve, the Bank of Japan and the Bank of England, with the Fed at the center.
U.S. retail sales data released overnight showed retail sales unexpectedly rebounded in August, while a separate report from the Labor Department showed initial jobless claims fell by 5,000, suggesting the economy may tolerate higher interest rates.
Treasury yields rose on the data as investors revised their expectations about where rates might go.
The two-year ratio hit a new 15-year high of 3.879% overnight and was last seen at 3.8646%. Meanwhile, the 10-year bond yield rose to 3.4431%.
Fed funds futures now point to a 25% chance of a 100 basis point hike at next week’s meeting.
“The strengthening of the dollar will continue, at least in the near term. Two key factors supporting the US dollar are still in place, so we have very tight market pricing for the FOMC … and on top of that, we have a deteriorating global growth outlook,” said Carol Kong, senior international associate. economics and currency strategy at the Commonwealth Bank of Australia.
“While the outlook for the global economy remains weak, the U.S. dollar may remain strong and possibly rise a bit.”
The U.S. dollar index fell 0.16% to 109.61, but remained close to its two-decade peak of 110.79.