Dollar Stays near 16-month Low Against Yen

The dollar steadied close to its 16-month low against the yen on Monday, with investors wary of the greenback’s future. A rebound in the US stock future supported to high-yielding currencies, including the Australian dollar.

A number of investors are currently preparing for a potential bounce in the dollar’s value, with the dollar posting its biggest weekly drop in a month against a basket of other major currencies last week.

 During the early London trading, the dollar perked up 0.4 percent against the yen after it fell 1.2 percent last week. It was its biggest drop since the week that ended on February 17, according to data.

Last week, US President Donald Trump proposed to impose tariffs on Chinese goods. This shook global markets, pushing the two countries closer to a trade war. However, most recent reports suggested a slightly more selective stance.

Also last week, the United States proposed to China in a letter, asking the Asian giant to cut the tariff on US autos and buy more US-made semiconductors. In addition, the US asked China to give American firm greater access to Chinese financial sectors, according to a news agency that did not name any of its sources.

US stock futures climbed 1 percent in early London trade following a major US index fall on Friday.

“Risk sentiment remains cautious and we remain bearish on the dollar’s outlook in the absence of any fundamental changes despite the rate differential factor supporting the greenback,” Manuel Oliveri said. Oliveri is an FX strategist at Credit Agricole based in London.

The US dollar index, which tracks the dollar against six other major currencies, inched 0.14 percent lower following last week’s 0.8-percent fall.

Japanese Yen Woes

The dollar’s strength against the Japanese currency was also attributed to certain Japanese factors, such as the worries over an escalating political scandal. A certain person is set to testify in parliament on Tuesday regarding a cronyism controversy surrounding the Japanese Prime Minister Shinzo Abe.

The prime minister’s “Abenomic” measures have contributed to the dragging of the yen down over the past years, with Japanese exporters benefiting a lot. Any event that could lead to a decline to Abe’s support rating could also lead to the weakening of his ability to maintain the Abenomics.

“With worries about the United States and China locking horns on trade issues and Japan’s parliamentary testimony coming up on Tuesday, few participants are willing to buy the dollar,” said Yukio Ishizuki, a senior currency strategist at Daiwa Securities.

Based on the calculations from the Commodity Futures Trading Commission data, speculators’ net short positioning on the yen deflated quickly to roughly 22,000 contracts in the latest week. It was the smallest since November 2016, from the net short positions of about 79,500 contracts.

The dollar did not perform well against the euro, which was higher 0.3 percent at $1.2386. A huge number of investors remained bullish on the euro’s future even if a disappointing survey data was released last week.

The Australian dollar gained 0.6 percent to $0.7740, while the New Zealand dollar climbed 0.8 percent to $0.7285. This was considered a further sign that the market is shaking off some of its risk aversion.

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