SINGAPORE- The dollar hit a one-month low on Wednesday as investors who are optimistic about a pre-election US stimulus package sought out riskier currencies, while the strong recovery in China’s economy helped drive the yuan to a two-year high.
President Donald Trump has raised hopes for a stimulus breakthrough, saying he was willing to accept a large aid bill, despite opposition from his own Republican Party.
That sent US 10-year Treasury yields to a four-month high, in anticipation of more government borrowing, and pressed the dollar index to its lowest level since September by boosting investors’ mood.
Doubts that any package can actually pass the Senate are keeping the dollar from breaching last month’s two-year lows.
The dollar index was last down about 0.1 percent in Asia.
The Australian and New Zealand dollars, which have lagged other majors’ gains on the greenback due to expectations of monetary easing in both countries, each rose about 0.4 percent.
The euro hit a one-month high of $1.1844.
The Japanese yen has likewise been held in stasis as the brightening mood weakens the greenback, but the simultaneous rise in US yields attracts investment flows from Japan out of yen and in to dollars. The yen edged up 0.1 percent on Wednesday.
In contrast to the dollar’s dependence on stimulus hopes, the yuan extended a remarkable rally on Wednesday, hitting a 27-month high and pulling China-exposed Asian currencies with it.
The yuan has soared 7.6 percent on the dollar since May as China has led the global coronavirus recovery and its stock and bond markets have soaked up offshore capital flows.
The yuan was last up 0.2 percent at 6.6532. Its rise helped lift the Australian dollar, weighed down by expectations of a rate cut in November, from Tuesday’s three-week low.
The South Korean won, Singapore dollar and Thai baht also rallied. The Indonesian rupiah hit a two-week high after solid demand in a Tuesday debt auction.