Aurelia Butler

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SINGAPORE (Reuters) – The dollar dipped on Friday but traders were largely keeping to the sidelines in both the currency and U.S. Treasury markets as they looked to U.S. nonfarm payrolls data later in the day for potential catalysts.Friday’s closely-watched jobs report comes on the heels of a run of resilient U.S. economic data which has reinforced the Federal Reserve’s hawkish messaging of higher-for-longer rates and sent the greenback and U.S. Treasury yields surging.The dollar index, which earlier in the week hit a roughly 11-month high of 107.34, last settled at 106.37, but remained on track for 12 straight weeks of gains.”There’s an element here of just taking stock ahead of what should be a very important data release,” said Rodrigo Catril, senior FX strategist at National Australia Bank (OTC:NABZY).”We’ve got to be mindful that at the moment, U.S. Treasury yields and the dollar, in particular, have been very reactive to positive data releases coming from the U.S., and therefore there’s potential for fireworks tonight.” A broad selloff in world government bonds also stabilised on Friday, with the 30-year U.S. Treasury yield last at 4.900%, after spiking above 5% for the first time since 2007 earlier in the week.Bond yields move inversely to prices.The benchmark 10-year Treasury yield last stood at 4.7269%, while the two-year yield settled at 5.0267%. [US/]The pause in the dollar’s rally has also provided a much-needed reprieve for the yen, which last bought 148.48 per dollar.Its sudden-but-brief spike of about 2% to 147.30 per dollar on Tuesday stoked speculation that Japanese authorities could have intervened in the currency market to shore up the battered yen, though data from the Bank of Japan (BOJ) seemed to suggest otherwise.”Whether the BOJ and/or (Ministry of Finance) will intervene at distinct levels … will continue to be a tease, contingent on broader currency markets and momentum,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank.”Currency traders may tease out thresholds, but should be warned to do so only cautiously.”Elsewhere, the euro slipped 0.03% to $1.0546 and was on track for a 0.25% decline for the week, extending its run of losses into a 12th week.Sterling edged 0.03% lower to $1.2188 and was likewise headed for five straight weeks of losses, struggling against a dominant dollar.”The backdrop remains one in which the Fed is sticking its hawkish neck out much further than the European Central Bank, Bank of England, Reserve Bank of Australia (and the) BOJ,” said Thierry Wizman, Macquarie’s global FX and interest rates strategist.The Australian dollar fell 0.05% to $0.6367, while the New Zealand dollar gained 0.11% to $0.59695, after both Antipodean currencies tumbled earlier in the week on the back of their respective central bank decisions.The RBA on Tuesday held interest rates steady for a fourth month, with the Reserve Bank of New Zealand following suit a day after, both in line with expectations, though their messaging came in less hawkish than expected.The Aussie was eyeing a weekly drop of more than 1%, while the kiwi was headed for a more than 0.5% fall. More

In its semi-annual Financial Stability Review, the Reserve Bank of Australia (RBA) also noted that higher interest rates were pushing more households into financial stress, though it judged most could cope should rates have to rise again.”Most Australian households and businesses remain well placed to adapt to the challenging set of economic conditions, though some are vulnerable to further shocks,” wrote RBA Governor Michele Bullock in the foreword to the 71-page review.This is Bullock’s first review since being promoted from deputy in mid-September.In an effort to curb surging inflation, the central bank has lifted interest rates to a decade-high of 4.1%, causing widespread financial stress among households where debt levels are at record peaks.That strain is one reason the RBA has put rate hikes on hold for the past four months, though it continues to caution that further tightening might be needed if inflation does not subside as hoped.The review estimated most borrowers with variable rate mortgages had seen payments rise by between 30% and 50%, while many with lower fixed rate loans would see similar increases as those rolled over.As a result, the share of owner-occupiers whose loan costs and essential expenses exceeded their incomes had increased to around 5%, up from 1% in early 2022. Under a broader measure of expenses, that share could be as high as 13%, it added.”A small, but rising share of borrowers are on the cusp, or in the early stages, of financial stress,” the review stated.Nevertheless, the RBA judged the stress was manageable overall with Australian banks more than well capitalised to absorb rising arrears or losses on loans.Instead, much of the review was focused on risks from offshore, where a tightening in global financial conditions was threatening to lead to a disorderly decline in asset prices and a slump in economic growth.A vicious sell off in U.S. government bonds recently has seen yields rise sharply across the globe and put pressure on equity markets in the process.Such pressure would only grow should inflation prove more stubborn than expected requiring interest rates to stay higher for longer, the RBA warned.”A tightening in global financial conditions could transmit to Australia via linkages in funding markets and risk aversion,” the review said.Financial institutions in some countries, and particularly the United States, were also exposed to losses in commercial real estate that could curtail their ability to lend, the RBA said.Another area of concern was China’s property sector where financial stress was proving a drag on the world’s second largest economy and Australia’s single biggest export market. More

Separate data on Friday showed Japan’s consumer spending also shrank for the sixth consecutive month in August, squeezing consumers’ purchasing power even as major companies offered their biggest pay increases in three decades.Global financial markets are closely following pay trends in the world’s third-largest economy as the Bank of Japan (BOJ) emphasises sustainable wage rises as a prerequisite for deciding whether and how to dismantle its ultra-loose monetary stimulus.”It still remains far from the level at which the BOJ can be confident of a virtuous cycle between prices and wages,” said Masato Koike, economist at Sompo Institute Plus.Inflation-adjusted real wages, a barometer of consumer purchasing power, fell in August by 2.5% from a year earlier following a revised 2.7% drop the month before, data from the Ministry of Health, Labour and Welfare showed.The consumer inflation rate officials use to calculate real wages, which includes fresh food prices but excludes rent, slowed to 3.7%, the lowest in 11 months. But nominal pay growth in August was 1.1%, unchanged from July after a downward revision and weaker than in June and May.Prime Minister Fumio Kishida said last week he would submit an extra budget to this month’s extraordinary parliamentary session that would fund a new economic stimulus package to help households ease the pain of price hikes and boost wages.Special payments dropped 5.4% year-on-year in August, the last month of the summer bonus season, marking the biggest fall since January 2021. A labour ministry official attributed the decline to more firms offering the bonus payment earlier this year, reflected in a 0.6% uptick in July and a 3.5% rise in June.Base salary growth in August climbed 1.6% year-on-year, from a revised 1.4% gain in the previous month, the data showed. Overtime pay, a gauge of business activity, increased in August by 1% year-on-year, after a revised 0.0% in July. WEAK CONSUMPTIONHousehold spending fell 2.5% in August from a year earlier, declining for six consecutive months but better than a median market forecast for a 4.3% decline.On a seasonally adjusted month-on-month basis, household spending rose 3.9%, versus an estimated 0.9% gain.Spending on food services, transportation, culture and entertainment services increased in August, while spending on a wide range of areas including food and test-prep school expenses decreased, a government official said. Major companies agreed to average pay hikes of 3.58% this year, and strong corporate earnings and labour shortages will help boost wages looking ahead, Sompo’s Koike said.”As import prices settle down, the growth rate of consumer inflation is also expected to gradually narrow, and real wages will also recover,” Koike said. “Consumption will move toward recovery as wages rise and economic activity normalises.”($1 = 148.9000 yen) More