Dollar gains amid inflation worries

The dollar rose on Wednesday amid jitters that surging energy prices could spur inflation and interest rate hikes, and as traders awaited US jobs data for clues on the timing of Federal Reserve policy tightening.

The Reserve Bank of New Zealand lifted its official cash rate for the first time in seven years, but its resolutely hawkish tone only seemed to add to expectations that the Fed would follow suit and the kiwi dipped as US yields rose.

The kiwi was last 1 per cent weaker at $0.6889 and the Australian dollar fell 0.6 per cent to $0.7243.

The euro was pinned below $1.16 and last bought $1.1567, scarcely higher than the 14-month low of $1.1563 it struck last week.

The yen fell to a one-week low of 111.79 per dollar in tandem with a rise in Treasury yields, which can draw investment flows from Japan. It was within range of the 18-month trough of 112.08 that it visited last Thursday.

The greenback has won support as investors brace for the Fed to begin tapering asset purchases this year

and lay the ground for an exit from pandemic-era interest rate settings well before central banks in Europe and Japan.

“A pretty classic haven bid into the dollar, helped along by new longs entering the market after we reclaimed a number of important technical levels in early trade during the Asian morning,” said Michael Brown, senior market analyst at Caxton FX.

“Higher Treasury yields are helping to provide further support for the USD, while also denting the attraction of the JPY, which continues to demonstrate a close negative correlation with Treasury yields. Again, the FX market is taking its cues from equities, which in turn are taking their cues from bonds - higher yields denting the attraction of growth stocks.”