Dollar gains as geopolitical worries, rate hike fear rattle market

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By Ankur Banerjee

(Reuters) - The dollar hit multi-year highs on Tuesday against the risk-sensitive Aussie and Kiwi dollars and the yen hovered near the level that prompted intervention as worries about rising interest rates and geopolitical tensions unsettled investors.

Strong U.S. labour data and an expectation of inflation figures on Thursday to remain stubbornly high have all but dashed bets on anything but high interest rates through 2023 and are driving the dollar back toward multi-decade highs.

Risk appetite was also hurt on Tuesday after Russia rained missiles upon Ukraine's cities on Monday in retaliation for blast that damaged the only bridge linking Russia to the annexed Crimean peninsula.

Sim Moh Siong, currency strategist at Bank of Singapore, said things are still uncertain because of geopolitical risks such as the war in Ukraine, escalating U.S.-China tensions and a sell-off in gilts on Monday.

"This renewed wall of worries is likely to keep the dollar supported," he said, but cautioned that there could be a bit of a relief rally in risky assets.

U.S. dollar index was up 0.239% at 113.34, inching toward the 20-year high of 114.78 it touched late last month.

The yen hit 145.80 per dollar overnight, just 10 pips short of the 24-year trough it made before the Japanese government stepped in to prop it up three weeks ago. Japan returned from a holiday on Tuesday and the yen sat at 145.69.

Fear of intervention has held the yen firm in recent weeks, but as it drifts back to multi-decade lows analysts aren't convinced it can hold the line.

"The bigger backdrop is that the intervention is unlikely to reverse the short term trend of upward bias to dollar/yen," Sim added.

The risk-sensitive Australian dollar made a 2-1/2 year low of $0.6275 on Monday and hovered at $0.6267 on Tuesday. Analysts at the National Australia Bank (OTC:NABZY) said the Aussie was the market's "whipping boy" in a sell off and that further lows were possible in the near term as sentiment is fragile.

The New Zealand dollar also made a 2-1/2 year low at $0.5545 on Monday and is close to breaking its pandemic trough, with weak data from China further souring the mood

"Our expectation for the world economy to enter recession next year is consistent with further gains in the dollar," said Commonwealth Bank of Australia (OTC:CMWAY) strategist Carol Kong.

Britain's markets remain on edge and not exactly soothed by the Bank of England stepping up bond buying and finance minister Kwasi Kwarteng promising to bring forward some budget announcements.

Gilts sold sharply overnight leading longer-term U.S. Treasury yields to move higher. Yields on the 30-year bond leapt as much as 11 basis points to the highest in almost nine years at 3.956%.

Sterling was also wobbly, sliding to a 10-day low of $1.1027 on Monday. The pound was down 0.31% at $1.1025 on Tuesday.

The euro was down 0.22% at $0.9682, heading for fifth straight session of decline and drifting toward 20 year low it touched on Sept. 26.

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Currency bid prices at 0335 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $0.9695 $0.9703 -0.08% -14.72% +0.9724 +0.9681

Dollar/Yen 145.6650 145.7300 -0.03% +26.66% +145.7650 +145.6650

Euro/Yen 141.22 141.39 -0.12% +8.36% +141.6700 +141.0800

Dollar/Swiss 1.0008 0.9994 +0.15% +9.72% +1.0013 +0.9987

Sterling/Dollar 1.1054 1.1060 -0.07% -18.28% +1.1095 +1.1025

Dollar/Canadian 1.3828 1.3780 +0.36% +9.38% +1.3833 +1.3771

Aussie/Dollar 0.6269 0.6299 -0.48% -13.77% +0.6305 +0.6262

NZ 0.5553 0.5566 -0.24% -18.88% +0.5584 +0.5541

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ