The dollar rose to a new six-year high against the yen on Wednesday, as the Australian dollar nursed a second session of heavy losses after further gains in U.S. Treasury yields.
Investors seemed to be repricing the risk of an earlier U.S. interest rate hike after some determined that a Federal Reserve study earlier this week could suggest markets were underestimating such a move.
U.S. Treasury yields have moved up as a result, with the two-year within sight of a three-year peak of 0.590 percent set in late July. The 10-year yield popped back above 2.50 percent, off a recent low of 2.30 percent, and was at 2.505 percent in Asian trade on Wednesday.
“People missed their chance to buy the dollar on dips,” said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.
“The interest rate outlook is in focus, as Japanese yields will keep to lower levels,” he said.
Standing out from the other major currencies, the Australian dollar skidded 0.4 percent to $0.9162, after dropping as low as $0.9154 as a pick-up in market volatility pushed investors to pare back carry trades, in which they borrowed lower-yielding currencies to fund investments in higher-yielding assets.
The Aussie’s setback was sparked by a broad rally in the U.S. dollar.
“Traders could see a further correction lower if we see a daily close south of $0.9175, which is a key support level,” said Stephen Innes, senior trader at OANDA Asia Pacific.
The euro, meanwhile, edged down against the greenback, moving back toward a 14-month trough of $1.2859 plumbed in European trade on Tuesday. It last traded at $1.2925, down about 0.1 percent on the day.
Sterling also got some reprieve despite ongoing worries about Scottish independence. It added about 0.1 percent to$1.6115, having carved out a fresh 10-month low of $1.6060 on Tuesday.
British Prime Minister David Cameron asked Scots on Tuesday not to vote for independence in next week’s referendum after an opinion poll showed rising support for a break from the United Kingdom.
The dollar index edged down slightly to 84.234 from Tuesday’s 14-month high of 84.519. But it is still within striking distance of its 2013 peak of 84.753, and a break of that level would take it to highs not seen since mid-2010.
Looking ahead, a policy review by New Zealand’s central bank, employment data from Australia and China’s inflation figures will take centre stage on Thursday. (Additional reporting by Cecile Lefort in Sydney; Editing by Richard Pullin and Jacqueline Wong)