March 14, 2012 / 11:23 PM / in 6 years

FOREX-Dollar flexes muscles as yields surge

* USD at multi-month peaks on yen, euro

* Aussie, kiwi, NOK nursing hefty losses

* SNB rate decision on Thursday

By Cecile Lefort

SYDNEY, March 15 (Reuters) - The dollar was holding hefty gains in Asia on Thursday after yet another stellar offshore session, as optimism about the U.S. economic recovery sparked a spike in Treasury yields.

The two-year Treasury note yield hit its highest since July , lessening the attraction of using the dollar to fund carry trades and pushing the yen to lows not seen since April.

Recent easing steps by the Bank of Japan have made the yen the favoured funding currency for investing in high-yield assets.

The U.S. dollar was last at 83.70 yen, having risen nearly 1 percent the previous day and 8.8 percent so far this year. Resistance is found at the psychological level of 85 yen, last seen 11 months ago.

The U.S. unit gained also against all other currencies, with its index hitting its highest in two months at 80.629. It was last up 0.4 percent at 80.531.

“The U.S. recovery is starting to gain some traction,” said Annette Beacher, head of Asia Pacific research at TD Securities in Singapore.

Hot on the heels of last week’s encouraging U.S. jobs report, a strong 1.1 percent rise in retail sales provided fresh evidence of an upturn in the world’s largest economy.

Acknowledging this trend, the U.S. Federal Reserve Bank slightly upgraded its outlook, expecting “moderate” growth over coming quarters and a gradual decline in the unemployment rate.

“All the dots are lining up for U.S. data at the moment and markets still digesting the fact that (Fed Chief) Bernanke has dropped the word ‘strain’ in terms of financial markets (in his last statement),” said Beacher.

This has led the markets to lower their expectations of further quantitative easing and given a boost to the dollar. Charts now suggest the currency is at the early stages of a sustained bull trend.

The euro fell to a one-month low of $1.30110 after triggering stop-loss orders below support at $1.3054, around the 50 percent retracement of a Jan. 16-Feb. 24 rally. It was last at $1.3030 with traders citing bids just above $1.3000.

Further support for the euro loomed at $1.2973, the next major trough of Feb. 16.

Commodities currencies were the hardest hit with the Australian and New Zealand dollars slipping to seven-week lows. The Norwegian crown dropped to a one-month trough against both the euro and dollar after its central bank unexpectedly cut interest rates to rein in its racy currency.

The Swiss franc was also under pressure ahead of the Swiss National Bank (SNB) policy decision later on Thursday. It fell to its lowest since January on speculation the SNB may lift the floor under the EUR/CHF from 1.20 Swiss francs. The euro was last at 1.2125 francs.

There is no major data due in Asia with next flash point on U.S. producer prices ahead of inflation numbers on Friday.

Our Standards:The Thomson Reuters Trust Principles.
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