US dollar, yen gain after weak China data, amid unrest in Afghanistan

NEW YORK/LONDON: The dollar rose on Monday against commodity currencies such as the Australian and Canadian dollars, while the safe-haven yen gained as disappointing economic data from China, political tension in Afghanistan, and the spreading Delta virus weighed on risk appetite.

The dollar’s gains came after recent losses following a slump in consumer sentiment on Friday weakened the US unit.

Against a basket of six major currencies, the greenback was little changed to slightly higher at 92.593, after falling to a one-week low of 92.468 on Friday. Its gains were most pronounced against commodity currencies.

The Aussie dollar was down 0.7% at US$0.7323, while the New Zealand dollar fell 0.3% to US$0.7040 ahead of a Reserve Bank of New Zealand’s policy meeting on Wednesday, at which economists widely expect the first hike in the benchmark interest rate since 2014.

The greenback, meanwhile, rose 0.4% against the Canadian dollar to C$1.2565.

“The spreading virus, the disappointing Chinese data, and the news that the Taliban have captured Kabul has dampened risk appetite,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

But currencies stuck to broad trading ranges as investors were wary of taking large bets at the start of a busy week for central banks.

China’s July retail sales, industrial production and fixed asset investment were all weaker than expected as the latest COVID-19 outbreak weighed on the world’s second-biggest economy.

Long positions on the greenback swelled to their biggest levels since March 2020, suggesting the dollar’s recent move lower was more a temporary setback than the beginning of a structural downtrend.

The release of the Fed minutes this week will be key to the short-term outlook for the greenback, especially if it confirms more policymakers are leaning towards tapering its bond purchase plan by the end of the year.

MUFG strategists noted there had been a clear pattern for the US dollar to strengthen modestly after the release of Fed minutes, but there is the risk of a bigger market reaction when Fed’s policy is moving closer to a pivot point.

“It poses the main event risk of disrupting the quiet period of trading we have seen over the summer,” they said.

Political unrest in Afghanistan in which Taliban insurgents took over Kabul over the weekend also undermined market sentiment.

Currency market volatility, even by its already low levels, is nearing 2021 lows thanks to the summer lull.

Elsewhere, minutes from the Reserve Bank of Australia’s latest meeting are due on Tuesday.

In cryptocurrencies, bitcoin edged higher to around $47,162, approaching the three-month high of $48,190 marked over the weekend.