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FOREX-Dollar shines as Fed signals tapering of bond buying
June 20, 2013 / 4:07 AM / 4 years ago

FOREX-Dollar shines as Fed signals tapering of bond buying

* Fed says can start to slow stimulus this year, recovery on track

* Dollar gains vs yen despite fall in equity prices

* U.S. Treasury yields soar, hitting high-yielding currencies

* Aussie hits lowest level in almost 3 yrs vs dollar, euro

* Asian currencies fall more than 1 pct vs USD

By Hideyuki Sano

TOKYO, June 20 (Reuters) - The U.S. dollar rose broadly on Thursday after the Federal Reserve signaled it would begin to dial down stimulus this year as the economic outlook improves.

The Australian dollar and emerging Asian currencies fell sharply as traders speculated that higher U.S. bond yields down the road would prompt investors to shift some of their funds back to the United States from high-yielding currencies.

The U.S. dollar also held firm against the yen, breaking away from the pattern in the past few weeks in which the greenback often fell when Tokyo share prices did.

Fed Chairman Ben Bernanke said that tapering of its bond buying depends on economic data and that a decline in U.S. unemployment to 6.5 percent is a threshold, rather than a trigger, for rate hikes.

Nonetheless, market players tried to look beyond, as U.S. bond yields rose sharply.

“About two years from now, the Fed is going to raise rates. At the end of the day, currencies with low funding costs are likely to be sold. This may lead to a shift from dollar-carried trade to yen-carried trade,” said a trader at a Japanese bank.

The dollar rose 0.3 percent against the yen to 96.74 yen , after touching a one-week high of 97.03 yen briefly on Wednesday despite falls in U.S. and global shares after the Fed’s policy meeting.

The euro also swiftly retreated from a four-month high around $1.3418 to last stand at $1.3272, down about 0.2 percent on Thursday following an 0.8 percent fall on Wednesday.

Bernanke’s comments, which dashed hopes for a more dovish stance, sent U.S. stocks and bond prices sharply lower, pushing benchmark Treasury yields to a 15-month high. The 10-year yield jumped to 2.377 percent, approaching its March 2012 peak of 2.399 percent and the October 2011 high of 2.420 percent.

The Fed’s statements put it ahead of the world’s other big central banks in reducing stimulus measures.

The Bank of Japan is just two months into its two-year stimulus while a sluggish euro zone economy is seen as keeping the European Central Bank on easy policy bias.

COMMODITY BLUES

Commodity currencies were among the hardest hit on Thursday, with the Australian dollar slumping to a fresh 33-month trough of $0.9240. On Wednesday, it fell 2.1 percent, its biggest daily drop in a year and a half.

The Australian dollar also hit its lowest level in almost three years against the euro, which rose to as high as A$1.4357 .

Asian currencies also dropped sharply, with the Korean won , the Thai baht, Malaysian ringgit and the Philippine peso all falling more than 1 percent.

They also had additional woes as the flash HSBC Purchasing Managers’ Index showed activity in China’s vast manufacturing sector weakened further in June to a 9-month low as new orders faltered

The New Zealand dollar saw a bit of action in early trade, falling about a quarter of a U.S. cent after economic growth at home disappointed.

It hit a near two-week low around $0.7842 after a closely watched report showed the economy grew only 0.3 percent in the first quarter, half of what was expected.

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