The safe-haven yen sank to its lowest in nearly three months. From a one month low, the Australian dollar continued to recover. The fears of widespread contagion from China Evergrande Group receded is the main reason for this. The yen also fell as higher U.S. yields attracted Japanese investor money. From July, the U.S. yields climbed to their highest. This is in anticipation of tighter U.S. monetary policy.
The euro traded little changed at $1.1724. They ignored developments in German elections, with the Social Democrats projected to narrowly defeat the CDU/CSU conservative bloc. The Federal Reserve announced that it will begin to trim its monthly bond purchases soon. The flagged interest rate increases may follow sooner than expected. Half of Federal Open Market Committee members projecting a hike next year. Commonwealth Bank of Australia analysts wrote in a client note that USD is likely to remain caught in the cross-currents of a more hawkish FOMC. Nevertheless, the risks are skewed to a firmer USD.
Concerns over Evergrande could default on its $305 billion of debt has overshadowed trade. The People’s Bank of China injected a net 100 billion yuan into the financial system. Several local governments in China have set up special custodian accounts for Evergrande property projects. This is for protecting the funds. The yen weakened as far as 110.81 per dollar. Chris Weston, head of research at brokerage Pepperstone in Melbourne, stated that the correlation between U.S. bonds yields and USDJPY has picked up. USDJPY looks a little stretched, so he would be wary to chase here. But he will be looking for a re-test of 110.50 as a potential support zone within what is a progressively bullish trend. The Aussie climbed 0.37% to $0.7282. The Norwegian crown gained about 0.4% and touched 8.5537 per dollar.