By Kevin Buckland
TOKYO (Reuters) – The dollar strengthened against major Asian rivals after a strong U.S. jobs report prompted traders to peg higher interest rates for longer.
The Australian dollar erased early losses after a report showed a pick-up in services activity in China’s biggest trading partner. The yuan also received a boost.
The Canadian dollar proved resilient, supported by a surge in crude oil prices.
The U.S. dollar was supported by higher Treasury yields after data on Friday showed payrolls in the public and private sectors rose by 339,000 in May, far exceeding the 190,000 average forecast by economists. interviewed by Reuters.
The US currency gained 0.11% to 140.135 yen, as 10-year US Treasury yields climbed more than 3 basis points to 3.727% in Tokyo. The dollar gained 0.84% against the yen on Friday.
The euro slipped 0.04% to $1.0702, extending the previous session’s 0.51% decline.
While overall job growth in the United States was much stronger than expected in May, wage pressures eased and the unemployment rate climbed from a 53-year low, potentially giving the Federal Reserve the possibility of pausing its rate hike campaign at the next meeting on June 13-14, after some officials expressed a preference to do so last week.
However, those bets simply shifted into July, and traders released bets on rate cuts later in the year.
CME Group’s FedWatch tool shows interest rate traders expect a 1 in 4 hike next week, up from 2 in 3 the previous week. For July, the markets are banking on a 70% chance that rates will be at least a quarter point above their current level.
“It’s very data-driven, and given that wages are moderating, that would indicate a potential break – but I don’t think they’re over,” said Bart Wakabayashi, branch manager at State Street in Tokyo. .
“The dollar as a whole will remain well supported.”
Wakabayashi expects the dollar to rise to 142.50 yen, and a sharp break would open the way to 145.
“If there are dips, there will be people looking to buy dollar-yen,” he said.
The Aussie held steady at $0.6605, recovering from early losses of up to 0.25%, helped by more evidence of China’s post-pandemic recovery. The Caixin/S&P Global Private Sector Services Purchasing Managers’ Index (PMI) rose from 56.4 in April to 57.1 in May, unlike the official PMI released last week which showed a pace of expansion slower.
The yuan edged higher, reversing an earlier decline. The US dollar was down 0.03% at 7.1074 yuan in offshore trading, after gaining 0.15% previously. It hit a six-month high at 7.1404 on Thursday.
The Canadian dollar was also firm, amid crude prices rising more than 1% after Saudi Arabia announced its biggest production cut in years. The greenback slipped 0.06% to C$1.34265, closing in on Friday’s two-week low of C$1.3408.
(Reporting by Kevin Buckland; Editing by Jacqueline Wong)