The dollar held steady against a basket of currencies on Wednesday following a rise in US debt yields, while the Canadian and Australian dollars trimmed gains after a rebound in crude oil prices fizzled. The dollar index stood at 98.196, not far from a one-week peak of 98.413 touched on Tuesday. The index was on track for an 11 percent gain this year.
The euro was almost flat at $1.0932 after slipping 0.4 percent overnight. A weak five-year auction and bounce in oil prices pushed US Treasury yields higher on Tuesday, favouring the greenback. Oil prices jumped on Tuesday as cold weather in parts of the northern hemisphere encouraged buyers. But on Wednesday, US crude handed back some of the previous day's 3 percent gain and dipped back towards a 7-year low, hurt by lingering supply glut concerns and forecasts that the cold snap would be short-lived.
The dollar is generally expected to gain against peers such as the euro and yen in 2016 on expectations that US monetary policy will diverge further from those in the euro zone and Japan, with the Federal Reserve poised to raise interest rates further next year after tightening for the first time in nearly a decade this month. But crude oil instability, made worse by prospects of a warm global winter, was seen clouding the dollar's near-term outlook.
"The yen is basically expected to weaken on US-Japanese yield differentials. But it will be exposed to volatility until US economic growth looks assured, and we could see even wider swings in case of a warm winter," wrote Junichi Makino, chief economist at SMBC Nikko Securities in Tokyo. "Thus a clear yen-weakening trend may not be established until the spring." The dollar was steady at 120.49 yen, moving within a tight 120.63-120.17 range so far this week. The US currency rose to 123.59 after the Fed's rate hike this month but has since lost momentum. The Canadian dollar weakened a touch to C$1.3851 against the dollar from an overnight close of C$1.3843, when it had rallied from C$1.3941 on the bounce in oil.
The loonie hit an 11-year low of C$1.4003 to the dollar earlier this month, dogged by weak prices of oil, Canada's main export, and the dollar's relative strength against other currencies. The Australian dollar slipped 0.2 percent to $0.7280 after rising to $0.7303 overnight, its highest since December 10. The New Zealand dollar was down 0.2 percent at $0.6860. The Chinese yuan in the spot market traded at 6.4902 per dollar, in proximity of a 4-1/2-year low of 6.4948 hit on Tuesday. The dollar has gained about 4.6 percent versus the yuan so far in 2015. The yuan tumbled after devaluation by the People's Bank of China in August and has retreated since, guided steadily lower by a succession of weakly set official midpoints.
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