The dollar retreated in early Asia trade on Friday, leading declines among major currencies.
Jackal Pan | Moment | Getty Images
Risk-sensitive currencies, including the Australian dollar, were boosted on Monday, while safe havens like the Japanese yen dipped against the U.S. currency, as risk sentiment was boosted by signs the U.S. federal government is closer to reopening.
The U.S. Senate on Sunday moved forward on a measure aimed at reopening the federal government and ending a 40-day shutdown that has sidelined federal workers, delayed food aid and snarled air travel.
The perception that Democrats will be damaged by failing to achieve their aims during the shutdown may also be boosting risk appetite as people look ahead to next year’s midterm elections, said Adam Button, chief currency analyst at investingLive in Toronto.
“This really just looks like a kind of rout to the Democratic Party, and then you have two more years of a Republican majority,” he said.
That would mean more spending, which is good for stocks, gold, and global growth, Button added.
Still, moves were dampened by relatively low volumes ahead of Tuesday’s Veterans Day holiday, when the U.S. bond market will be closed and forex markets are likely to see a drop in activity.
“Trading volumes are relatively thin ahead of tomorrow’s holiday and most participants are avoiding big directional positions as they grapple with the uncertainties still swirling around the state of U.S. fundamentals,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
The dollar index was last down 0.14% at 99.59, and the greenback was flat against the euro at $1.564. The dollar gained 0.44% to 154.07 Japanese yen.
The Aussie rose 0.57% to $0.6528 against the U.S. currency.
That Australian currency is sometimes used as a barometer of sentiment towards global growth, and often moves in line with equity markets, which were higher on Monday.
If the shutdown is lifted, the focus will shift to U.S. economic data, particularly non-farm payrolls data, which has not been released since government operations ground to a halt more than a month ago.
Market pricing currently reflects a 67% chance of a Federal Reserve interest rate cut in December, although that pricing could shift sharply in either direction once the data comes through.
There were also domestic factors shaping both the yen and Aussie dollar.
Japanese Prime Minister Sanae Takaichi on Monday said she would work on setting a new fiscal target extending through several years to allow more flexible spending, essentially watering down the country’s commitment to fiscal consolidation.
Separately, the Bank of Japan’s summary of opinions on Monday also said that the “fog surrounding Japan’s economic outlook has begun to clear compared with July,” potentially paving the way for a rate hike in December, which would help support the currency.
“There is over-excitement that this will be complete Abenomics. We are expecting another hike by the BOJ,” said Salman Ahmed, global head of macro and strategic asset allocation, at Fidelity.
Meanwhile, Reserve Bank of Australia Deputy Governor Andrew Hauser said in a speech that the country’s financial conditions are closer to a neutral rate of interest – one that is neither stimulative nor a drag on the economy.
“The speech, which came across as hawkish, propelled the Australian dollar higher,” said analysts at Westpac in a note.
In cryptocurrencies, bitcoin gained 0.53% to $105,060.
