SINGAPORE- The dollar rose broadly on Wednesday and stood near a two-week high against its major peers, underpinned by a confluence of factors including elevated US Treasury yields and a cautious turn in risk sentiment that weighed on Wall Street.
Trading was thinned in Asia with Japan out on a holiday, and with investors still returning from an extended New Year break, currencies traded mostly sideways in early deals.
However, the New Zealand dollar often used as a proxy for risk appetite, slid to a two-week low of $0.62485.
The Australian dollar likewise hit a two-week trough of $0.6756.
The US currency was broadly firm, enjoying some respite after having fallen 2 percent last month and clocking its first yearly loss since 2020.
A surge in risk appetite at the end of last year – sparked by a dovish tilt in the Federal Reserve’s December policy meeting which further fueled bets for US rate cuts in 2024, had toppled the greenback and sparked a rally in Treasuries and stocks.
That, however, failed to carry on into the New Year, with a bout of risk aversion causing the S&P 500 and Nasdaq Composite to close their first trading session of 2024 lower, dragged down by big tech names.
“We’ve just seen quite a significant reversal in risk sentiment in the last 24 hours,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB). “Higher US yields, weaker US stocks equals stronger dollar. I think that’s the simple story.”
“The kiwi dollar, which has been one of the more risk-sensitive currencies, has sort of underperformed versus most other currencies as well,” said Attrill.
A broadly stronger dollar also weighed on the euro and sterling, which had, on Tuesday, clocked their worst daily performance in months.
