January 11, 2018 / 1:10 AM / 5 months ago

FOREX-Dollar bruised by worries over China's stance on US bonds

* Dollar steadies vs yen after biggest 1-day drop since May

* Yen supported by speculation of BOJ’s eventual stimulus exit

By Masayuki Kitano

SINGAPORE, Jan 11 (Reuters) - The dollar nursed its losses against the yen on Thursday, having suffered its biggest one-day drop in nearly eight months following a report that China was ready to slow or halt its purchases of U.S. Treasuries.

Officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, Bloomberg News reported on Wednesday, citing people familiar with the matter.

The report sent U.S. 10-year Treasury yields to 10-month highs and dented the dollar on Wednesday, which slid nearly 1.1 percent on trading platform EBS, its biggest one-day percentage fall versus the yen since last May.

The dollar regained some ground on Thursday, edging up 0.1 percent to 111.54 yen.

While it is conceivable that China could make some adjustments to its foreign reserve holdings, it seems “highly unlikely” that China will stop buying U.S. Treasuries, said Stephen Innes, head of trading for Oanda in Singapore.

However, Innes said the uncertainty over China’s stance could potentially dampen investors’ risk appetite, while the dollar would likely face headwinds against the yen due to speculation about the Bank of Japan’s future exit from its massive stimulus policy.

The yen has risen this week after the Bank of Japan on Tuesday trimmed its buying of long-dated Japanese government bonds in market operations.

While the BOJ move on Tuesday was a technical tweak in line with the central bank’s policies to date, it unleashed a wave of speculation that the BOJ could be poised to begin winding down its stimulus.

Against a basket of six major currencies, the dollar inched up 0.1 percent to 92.386, having regained some footing after falling to as low as 91.922 on Wednesday.

The euro held steady at $1.1949, having retreated from Wednesday’s intraday high of $1.20185.

The Canadian dollar nursed its losses, having slipped on Wednesday as worries of a U.S. NAFTA withdrawal tempered bets that the Bank of Canada will raise interest rates next week.

Canada is increasingly convinced that U.S. President Donald Trump will soon announce that the United States intends to pull out of the North American Free Trade Agreement, two government sources said.

The Canadian dollar held steady at C$1.2553 per U.S. dollar. On Wednesday it slid 0.7 percent and fell to as low as C$1.2583, the loonie’s lowest level since late December. (Reporting by Masayuki Kitano; editing by Richard Pullin)

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