Dollar rises as more central banks turn dovish, defies lower Treasury yields

TOKYO (Reuters): The dollar rose on Thursday as many of its peers weakened after more central banks opted to shift to a dovish policy stance in the wake of deteriorating economic prospects.

The latest switch came from the Reserve Bank of New Zealand (RBNZ), which stunned markets on Wednesday by saying the next move in rates is likely to be down, joining a growing list of central banks that had turned dovish.

The dollar index against a basket of six major currencies was 0.17% higher at 96.942 and headed for its third day of gains.

With many of its peers going on the defensive, the dollar has been able to brush aside a decline by benchmark US Treasury yields to 15-month lows.

“Treasury yields are indeed lower. But this isn’t impacting the dollar very much as Treasury yields are still at attractive levels relative to those in the euro zone and now New Zealand, which has just turned dovish,” said Takuya Kanda.

“So it is currencies like the euro, which is being dragged down by negative German yields, and the New Zealand dollar, which are suffering losses and allowing the dollar to rise in turn.”

The euro was a touch higher at $1.1252. The single currency has still lost 0.45% this week with the benchmark 10-year bund yield having fallen to 2-1/2-year low of minus 0.09%.

The euro’s upside was limited after European Central Bank President Mario Draghi said a hike in interest rates could be further delayed.

Growth-sensitive currencies have taken a beating recently on rising risks to the global economy, highlighted by the shakeout in US bond yields which signalled a future recession there.

The New Zealand dollar was down 0.2% at $0.6786, stretching losses from the previous day’s 1.6% slide.

The Australian dollar, which often moves in sympathy with the kiwi, slipped 0.1% to $0.7077. The Reserve Bank of Australia had last month abandoned its long-held tightening bias, and markets there are pricing in a cut this year.

The Aussie had shed nearly 0.7% on Wednesday along with the plummeting kiwi.

The pound lost 0.1% to $1.3172 after going as low as $1.3143 earlier on Thursday.

Sterling was on the back foot after an offer by British Prime Minister Theresa May to quit to get her European Union divorce deal through parliament failed to win over key opponents of the agreement. 

The dollar slipped 0.15% to 110.34 yen but managed to stay clear of a six-week trough of 109.70 plumbed on Monday.

The 10-year US Treasury note yield slipped to 2.342%, its lowest since December 2017 on worries about a global recession and after the RBNZ embraced a dovish tone on interest rates.