The dollar pulled back a little from an 11-year peak against a basket of major currencies on Tuesday, with the Australian dollar stealing the spotlight as it surged after the Reserve Bank of Australia stood pat on interest rates. The US currency also was pressured against the yen after Etsuro Honda, an economic adviser to Japanese Prime Minister Shinzo Abe, told the Wall Street Journal in an interview that dollar/yen may be at the "upper limit of comfort zone."
The comments pulled the dollar off a three-week high of 120.27 yen hit earlier on a spike in US debt yields. It last traded at 119.77, down 0.3 percent. "In addition to some option-related selling above 120 yen, Honda's comments helped send the dollar lower. The pullback in Japanese shares is another factor weighing on the dollar today," Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm. Tokyo's Nikkei sagged 0.2 percent.
"But these factors are only short-term selling factors. Dollar/yen firmly remains in an uptrend long term," Ogino said. The dollar index climbed as far as 95.516, a high not seen since September 2003 before drifting down to 95.353, down 0.1 percent on the day. The main action was on the Australian dollar, which rallied against its US counterpart after the RBA opted to leave its policy rate unchanged at record low of 2.25 percent, surprising some who had looked for another easing to follow February's cut.
The Aussie jumped to a high of $0.7845, bouncing from a session low of $0.7751 hit earlier amid expectations that RBA would cut interest rates. However, the Aussie's rebound might prove temporary with the RBA seen taking rates lower sooner or later. "Another rate cut will eventually be needed to cushion the economy from a slowdown in mining investment and sluggish non-resources sectors. Low inflation here and overseas will make the decision easier when the time comes," said Jasmin Argyrou, senior investment manager at Aberdeen Asset Management.
The euro, meanwhile, was up 0.1 percent at $1.1192, crawling up from a six-week low of $1.1160 struck overnight. Higher US Treasury yields helped limit the dollar's losses. The benchmark 10-year note hovered near 2.00 percent after spiking about 8 basis points overnight. In addition to Wall Street shares hitting fresh record highs on Monday, yields were seen driven up by a batch of mixed data overnight.
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