The dollar enjoyed a relief rally against the yen and Swiss franc on Monday as leaders in the US Congress agreed on a deal to trim fiscal spending, easing concerns of an imminent US debt default and prompting traders to unwind safe haven plays. Commodity currencies climbed with the New Zealand dollar hitting a fresh post-float high against the US dollar, and the Australian dollar nearing a 29-year peak hit last week.
The yen pulled back from last week's four-month peak against the dollar, a rise that had lifted the Japanese currency close to a record and stirred some jitters about the possibility of yen-selling intervention by Japanese authorities. But market players said the yen's retreat Monday against the dollar was likely to be short-lived, given lingering worries that the US sovereign rating could be downgraded, as well as concerns about the outlook for US economic growth.
"Downward pressure on dollar/yen is likely to strengthen, once short-term dollar short-covering runs its course," said Junya Tanase, chief FX strategist for J.P. Morgan Chase Bank in Tokyo. The dollar rose 1.2 percent against the yen to 77.65 yen. The dollar had hit a four-month low of 76.70 yen late last week on trading platform EBS, nearing a record low of 76.25 yen struck in March.
The dollar hit an intraday high just above 78 yen earlier, after President Barack Obama late on Sunday Washington time announced a last-minute deal to raise the US borrowing limit and urged lawmakers to approve the proposed agreement. The dollar faces resistance at 78.53 yen, the 38.2 percent retracement of its slide from a peak hit in early July down to Friday's four-month trough.
Dollar-selling by Japanese exporters, relieved at the spike in the dollar after its fall close to a record low late last week, helped limit the greenback's rise, traders said. Against the Swiss franc, the dollar rose 1 percent to 0.7936 francs, pulling away from a record low near 0.7850 francs hit late last week.
The yen fell broadly while the Aussie dollar and the kiwi both rallied, with the New Zealand dollar hitting a post-float high of $0.8842 at one point and the Australian dollar rising 0.4 percent to $1.1043, nearing a 29-year peak of $1.1081 struck last week. The euro held steady against the dollar at $1.4392.
In the dollar/yen options market, three-month yen call options with strike prices near 72 yen to 73 yen had been popular last week, an FX options trader said. Such yen calls had been in demand both from hedge funds, as well as market players trying to hedge their dollar exposure such as Japanese exporters, the trader said.