Aussie jumps on China stimulus hopes; dollar close to 5-year peak in yen ahead of Fed

TOKYO, March 16 (Reuters) – The Australian dollar surged on Wednesday after comments from a senior Chinese official boosted stimulus hopes, as the U.S. dollar traded near a five-year high against the yen, with markets expecting the Federal Reserve to waive interest. rate for the first time in three years.

The Aussie gained 0.34% to $0.7223, moving away from Tuesday’s low of $0.71650, which was the lowest level this month, after Xinhua news agency quoted Vice Premier Liu He saying that China will put in place policy measures favorable to its capital markets.

“Australia and China have a very strong economic relationship, so the Australian dollar is always going to move based on news from China,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

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“Beyond China, it’s very easy for the Aussie to get high on any positive development for commodities right now.”

The US dollar lost 0.30% to 6.3629 yuan in the offshore market, which would be its biggest daily decline in a month.

The greenback stood at 118.305 yen, little changed from Tuesday, when it hit 118.450 yen for the first time since January 2017.

The US currency was supported by a jump in long-term US Treasury yields to a high of more than two years before the Fed’s decision, while the yen was also undermined by soaring oil prices and other commodities, weakening Japan’s terms of trade. .

Money markets are fully priced for the first interest rate hike in three years, and give a 13% chance of a half-percentage-point hike.

Meanwhile, hopes for a breakthrough in Russian-Ukrainian talks to end the conflict saw the euro extend its recovery from a plunge to a nearly 22-month low earlier this month.

That helped keep the dollar index – which measures the dollar against six peers, with the euro being the most heavily weighted – below 99, from 99.415 at the start of last week. The index last stood at 98.853, down 0.08% from Tuesday.

“Whether desperate or not, there seems to be some enduring optimism (coming) that Russia and Ukraine are still talking,” helping the euro stabilize, said Ray Attrill, head of FX strategy. at the National Australia Bank.

For the greenback, “the biggest question will be that there’s a lot of historical evidence that the dollar peaks as soon as the Fed starts the tightening cycle, so there’s a lot of interest in whether what the Fed is doing turns out to be something of a turning point in terms of peak,” with the dollar index surging above around 100, Attrill said.

The euro gained 0.17% to $1.09710, after a low of $1.08060 on March 7.

The pound rose 0.08% to $1.3053 from a 16-month low of $1.3000 in the previous session, with the Bank of England announcing its policy decision on Thursday and a rate hike widely observed by another quarter point.

“With the UK more exposed to the Russian supply shock than the US, we believe the risks lie in BoE disappointment and a weaker GBP at $1.2894,” Kristina Clifton wrote. , Commonwealth Bank of Australia analyst, in a client note.

The Bank of Japan is expected to leave ultra-loose policy settings in place during its policy review on Friday.

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Reporting by Kevin Buckland; Editing by Sam Holmes and Simon Cameron-Moore

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