Dollar pauses rally as markets brace for US nonfarm payrolls test

SINGAPORE, Oct 6 – The dollar dipped on Friday but traders were largely keeping to the sidelines in both the currency and US Treasury markets as they looked to US nonfarm payrolls data later in the day for potential catalysts.

Friday’s closely-watched jobs report comes on the heels of a run of resilient US economic data which has reinforced the Federal Reserve’s hawkish messaging of higher-for-longer rates and sent the greenback and US Treasury yields surging.

The dollar index , which earlier in the week hit a roughly 11-month high of 107.34, last settled at 106.37, but remained on track for 12 straight weeks of gains.

“There’s an element here of just taking stock ahead of what should be a very important data release,” said Rodrigo Catril, senior FX strategist at National Australia Bank.

“We’ve got to be mindful that at the moment, US Treasury yields and the dollar, in particular, have been very reactive to positive data releases coming from the US, and therefore there’s potential for fireworks tonight.”

A broad selloff in world government bonds also stabilised on Friday, with the 30-year US Treasury yield last at 4.900%, after spiking above 5% for the first time since 2007 earlier in the week.

Bond yields move inversely to prices.

The benchmark 10-year Treasury yield last stood at 4.7269%, while the two-year yield settled at 5.0267%.

The pause in the dollar’s rally has also provided a much-needed reprieve for the yen, which last bought 148.48 per dollar.

Its sudden-but-brief spike of about 2% to 147.30 per dollar on Tuesday stoked speculation that Japanese authorities could have intervened in the currency market to shore up the battered yen, though data from the Bank of Japan (BOJ) seemed to suggest otherwise.

“Whether the BOJ and/or (Ministry of Finance) will intervene at distinct levels … will continue to be a tease, contingent on broader currency markets and momentum,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

“Currency traders may tease out thresholds, but should be warned to do so only cautiously.”

Elsewhere, the euro slipped 0.03% to $1.0546 and was on track for a 0.25% decline for the week, extending its run of losses into a 12th week.

Sterling edged 0.03% lower to $1.2188 and was likewise headed for five straight weeks of losses, struggling against a dominant dollar.

“The backdrop remains one in which the Fed is sticking its hawkish neck out much further than the European Central Bank, Bank of England, Reserve Bank of Australia (and the) BOJ,” said Thierry Wizman, Macquarie’s global FX and interest rates strategist.

The Australian dollar fell 0.05% to USD 0.6367, while the New Zealand dollar  gained 0.11% to USD 0.59695, after both Antipodean currencies tumbled earlier in the week on the back of their respective central bank decisions.

The RBA on Tuesday held interest rates steady for a fourth month, with the Reserve Bank of New Zealand following suit a day after, both in line with expectations, though their messaging came in less hawkish than expected.

The Aussie was eyeing a weekly drop of more than 1%, while the kiwi was headed for a more than 0.5% fall.

(Reporting by Rae Wee. Editing by Shri Navaratnam)