The dollar is ready for the second week of decline but the outlook is bullish
LONDON (Reuters) – The US dollar slipped against its rivals on Friday and is expected to experience a second week of decline in a row as heavily indebted real estate company China Evergrande Group avoided a default that boosted appetite for assets risky.
Concerns over the beleaguered real estate developer whose liabilities equal 2% of China’s gross domestic product had prompted investors to flock to currencies seen as safe havens like the US dollar and government debt.
Concerns about economic contagion have seen many other heavily indebted developers have their credit ratings lowered.
But days before a deadline that would have plunged the besieged developer into formal default and sent shockwaves through global markets, the company provided funds to pay interest on a U.S. dollar bond.
“So while this is good news in terms of avoiding an impending formal default over the weekend, uncertainty is likely to remain high until Evergrande’s position and that of other companies real estate in China are clearer, ”MUFG strategists said in a statement. daily note.
The dollar index edged down 0.1% to 93.61, putting it on track for a second straight week of decline.
But the general market rhetoric remained favorable for further gains in the US dollar, as rising bond yields amid firmer inflation expectations should support the greenback.
Yields on 10-year US Treasuries held close to their highest levels this year at 1.7% while yield spreads between comparable US and German debt held at a hefty 177bp.
Additionally, rising expectations that the US Federal Reserve will be among the leaders in tightening monetary policy ahead of other major central banks are also prompting investors like UBS Wealth Management to keep the dollar as their preferred currency in their portfolios.
Elsewhere, the Australian dollar was at $ 0.7498, above Thursday’s three-month high, as the boost to the currency exposed to China by the Evergrande news was offset by the action of the Reserve Bank of Australia to stem a bond sale, as well as the pause in rising energy prices.
The RBA said on Friday it stepped in to defend its return target for the first time in eight months, spending A $ 1 billion ($ 750 million) to cushion an aggressive bond sale, as traders bet on inflation leading to rate hikes.
Elsewhere, the euro was little changed at $ 1.1627, while the yen wobbled from multi-year lows, with the dollar worth 114.01 yen, down from 114.69 earlier in the week, a lowest for four years.
Reporting by Saikat Chatterjee; Editing by Emelia Sithole-Matarise