Dollar firms past 150 yen; yuan struggles for footing

SINGAPORE: The dollar rose broadly on Tuesday and firmed above 150 yen on mounting expectations of higher-for-longer U.S. rates, contrasting with a recession in Japan and market doubts about a near-term exit from the country's ultra-easy policy. China grabbed traders' attention early in the day after a big cut to its benchmark reference rate for mortgages. While the cut comes on top of other efforts to stimulate credit demand and revive the property market, the yuan struggled near a three-month low as investors say more policy support is required to shore up fragile confidence.

The onshore yuan was last marginally higher at 7.1982 per dollar, after having slipped to its lowest since November earlier in the session. Dollar selling from China's major state-owned banks on Tuesday to stem the yuan's decline helped cap its losses. The offshore yuan stood at 7.2089 per dollar.

"It's great to see the news. It's a necessary first step to alleviate debt burden, stimulate long term investment, and bolster stock market confidence," said Dan Wang, chief economist at Hang Seng Bank China. "In the next step, we will see if policymakers will continuously lower rates by big amount, one time big cut is not enough to reverse market expectation."

The Aussie, often used as a liquid proxy for the yuan, fell 0.15% to $0.6530, while the New Zealand dollar lost 0.19% to $0.61385, as the move from China failed to substantially boost investor optimism. In the broader market, the greenback rose 0.2% to 150.42 yen , having already surpassed the key 150 yen level for six straight sessions and prompting warnings from Japanese officials in a bid to stabilise the currency.

Higher-than-expected U.S. producer prices and consumer prices data last week further scaled back market expectations of how soon, and by how much, the Federal Reserve could ease interest rates this year, with futures pointing to just about 90 basis points worth of cuts in 2024, down from about 160 bps at the end of last year. On the other hand, Japan's economy, which unexpectedly slipped into a recession in the final quarter of last year on sluggish consumption and capital expenditure, has prompted investors to rethink the chances of a near-term exit by the Bank of Japan (BOJ) from its ultra-loose monetary policy.

"At the moment, the data coming in from Japan is telling us that it's not as rosy as what the BOJ would like to see in order to begin moving away from negative interest rates," said Rodrigo Catril, senior currency strategist at National Australia Bank. The euro fell 0.1% to $1.0768, while sterling dipped 0.13% to $1.25795.

"We're still stuck in these ranges to some extent, and waiting for more meaningful or material data to swing us one way or the other," said Catril. "So for that, data coming from the U.S. remains paramount." In the bond market, U.S. Treasury yields ticked higher in response to last week's inflation data and the repricing of Fed expectations.

The benchmark 10-year yield was last at 4.3009%, while the two-year yield steadied at 4.6463%. The dollar index, a measure of the greenback against its major peers, rose 0.08% to 104.37.

Down Under, a still-cautious Reserve Bank of Australia (RBA) similarly reinforced bets that rate cuts were likely still some way off, after minutes of the central bank's February meeting out on Tuesday showed policymakers need more time to be confident inflation is on the decline before it can rule out another hike in interest rates.