The dollar rose broadly on Monday with the Australian and New Zealand dollars down sharply as speculators covered short positions that had pushed the greenback to one-year lows. The higher-yielding Australian dollar lost about 1 percent against the dollar as oil prices dropped, denting commodities-linked currencies, traders said.
The dollar's rebound had started with the New Zealand dollar's fall in early trade after soft data showing the country's retail sales dipped unexpectedly in July, traders said. The yen, however, hit a seven-month high against the dollar in early Asian trade, helped by slides in other major currencies versus the dollar.
Many analysts said Monday's dollar rebound was only a temporary blip in its downward trend, with the greenback recently undermined by falling Treasury yields and the view that it is replacing the yen as the funding currency for carry trades.
Persistent talk of Asian central banks diversifying from US dollars to other currencies and assets, including gold, had also contributed to dollar selling last week. "A rise in the dollar is nothing more than a technical rebound and the greenback's downtrend is unchanged," said Hideki Hayashi, global economist at Mizuho Securities.
"Given their yield advantages, the Australian and New Zealand dollars will continued to be preferred over the US dollar." The Australian dollar fell 0.8 percent to $0.8571, retreating from Friday's high of $0.8677, a high of more than one year.
The New Zealand dollar slid 1.4 percent to $0.6981, off Friday's peak of $0.7089, also a high of more than one year. New Zealand retail sales for July fell unexpectedly for the second month in a row, backing the central bank's view that recovery from recession was patchy.
The dollar index, a gauge for the greenback's performance against six major currencies, rose 0.4 percent to 76.876, rebounding from its one-year low of 76.457 hit late last week. The dollar was seen ready for a broad rebound on short-covering after currency speculators built up huge bets against the greenback to their highest levels since at least mid-July 2008 when the euro hit its record high against the US currency.
The euro slipped 0.2 percent to $1.4541. Traders said hedge funds sold the European currency earlier in the day to book profits on its rally to a 2009 peak of $1.4636 struck on trading platform EBS on Friday. The euro fell 0.5 percent to 131.50 yen partly as a 2.4 percent drop in Tokyo's Nikkei share average prompted Japanese investors to trim long positions in higher-yielding currencies previously built on hopes for global recovery.
The dollar was down 0.2 percent at 90.52 yen, having fallen earlier to 90.18 yen on EBS, its lowest since February. "Many large option barriers await the dollar/yen around 90 yen, which is likely to make the yen's rise slow-paced," said a forex trader at a Japanese trust bank.
"At the same time, many believe it is only a matter of time before the dollar falls below the 90 yen level as there is little sense of the market being overheated." A break below 90 yen level will likely pose a headache for Japanese authorities who have usually frowned on a sharply higher currency in the past. But analysts are not sure how Japan's incoming government will tackle the problem, although they say the Democrats appear to favour a more hands-off attitude then Japan has had in the past.