NEW YORK: The dollar rose to a six-year high against the yen on Wednesday as U.S. Treasury yields ground higher, while the Australian dollar sank to six-month lows as investors unwound carry trades that have benefited the currency.
The greenback has gained on expectations that continuing improvement in the U.S. economy will lead the Federal Reserve to begin raising rates next year, while the euro and the yen are being weighed down by flagging economies and low inflation in Japan and the euro zone.
"There are so many factors that are supporting the dollar at the moment, mainly its better performance in the U.S., which will likely bring a more hawkish tone from the Fed," said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in New York.
The dollar increased 0.54 percent to 106.66 yen. It gained 0.21 percent against the euro to $1.2908, but the euro held above 14-month lows of $1.2858 reached on Tuesday.
The dollar index inched up to 84.342 but was below Tuesday's 14-month high of 84.519. It is within striking distance of its 2013 peak of 84.753, and a break above that level would take it to highs not seen since mid-2010.
U.S. Treasury yields have climbed this month as investors factor in the chances of a more hawkish central bank. Two-year notes are within sight of a three-year peak of 0.590 percent set in late July while the 10-year yield rose back above 2.50 percent after testing such levels on Tuesday.
The Australian dollar, meanwhile, is being hurt by falling iron ore prices and weakening of China's economy. At the same time, hedge funds have been pulling out of carry trades, where investors borrow cheaply in the dollar to buy other, higher-yielding currencies, which had been supporting the Aussie dollar.
The Aussie dollar sank 0.66 percent to US $0.9144, the lowest since March.
Sterling also got some reprieve despite ongoing worries about a vote for Scottish independence. It added about 0.12 percent to $1.6123, after reaching a fresh 10-month low of $1.6060 on Tuesday.
Britain's three main political parties have gone into campaign overdrive since a poll at the weekend showed Alex Salmond's nationalists gaining the upper hand. Several recent surveys have shown the Sept. 18 vote as too close to call.
The pound has fallen 3 percent since the first survey showing the sharp shift towards the nationalists at the start of last week. To many, that still seems a small move given the risk the vote next week may break up the United Kingdom and lead to two years of procedural uncertainty and bickering.
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