By Rae Wee
SINGAPORE (Reuters) -The dollar eased on Monday but held close to a two-year peak, as traders awaited a raft of U.S. economic data this week headlined by December’s nonfarm payrolls report for further clues on the Federal Reserve’s rate outlook.
In Canada, Prime Minister Justin Trudeau is increasingly likely to announce he intends to step down, though he has not made a final decision, a source told Reuters. The Globe and Mail earlier reported that Trudeau was expected to announce his resignation as early as Monday.
Markets appear to have largely priced that in and might welcome an election to clarify matters, leaving the U.S. dollar down 0.36% against its Canadian counterpart to C$1.4395.
Also in focus was the Chinese yuan, which on Friday weakened past the psychological level of 7.3 per dollar in the onshore market for the first time in 14 months, after the People’s Bank of China (PBOC) had aggressively defended that key threshold for most of December.
The onshore yuan slid a 16-month low of 7.3289 per dollar, while its offshore counterpart ticked up 0.06% to 7.3558.
“The PBOC looks to have stopped defending that 7.30 level,” said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY) (NAB).
“That just draws a lot more attention to what the PBOC does from a fixing perspective today and in the coming days, as to whether effectively they’re now allowing dollar/CNY to trade up into a higher trading range or not, because I do think that will have implications for broader Asia currencies, but also for the Aussie and kiwi.”
Prior to the market opening on Monday, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1876 per dollar.
The Australian and New Zealand dollars, often used as liquid proxies for the yuan, were hardly affected by Friday’s move lower in the Chinese currency, as they both traded roughly 0.2% higher in the Asian session.
The Aussie last bought $0.6227, while the kiwi rose 0.22% to $0.56245.
TRUMP AND RATES
In the broader market, investors had their eye on Friday’s closely watched U.S. jobs report for further clarity on the health of the world’s largest economy.
A slew of Fed policymakers are also due to speak this week, where they are likely to reiterate recent comments from their colleagues that the fight against taming inflation is not yet done.
The dollar has continued to draw strength from expectations of fewer Fed cuts this year, with its climb to a two-year high last week pushing the euro to its weakest level in more than two years.
The common currency was last little changed at $1.0310, while the dollar index eased slightly to 108.89.
Sterling rose 0.13% to $1.2440. The yen fell 0.24% to 157.66 per dollar.
Also providing the dollar with additional safe-haven support was uncertainty over U.S. President-elect Donald Trump’s plans for hefty import tariffs, tax cuts and immigration restrictions upon his inauguration on Jan. 20.
“There’s still a massive amount of uncertainty as to the speed with which we’ll see policy announcements and how much the reality will match up to the rhetoric, so I think that leaves huge amounts of uncertainty in markets,” said NAB’s Attrill.
“It’s just really hard to see the U.S. dollar coming to any harm… at the moment, you’ve got to be pretty brave to be betting against the continuation of dollar strength.”
