The U.S. dollar rose to a seven-week peak on Thursday, following President Joe Biden and top U.S. congressional Republican Kevin McCarthy working towards avoiding a damaging debt default, while the Aussie dollar slipped after disappointing jobs data.
Biden and McCarthy on Wednesday underscored their determination to strike a deal soon to raise the government's $31.4 trillion debt ceiling, having agreed a day earlier to negotiate directly after a months-long standoff.
While the upbeat meeting helped calm fears of an unprecedented American debt default, a cautious air tempered risk-taking.
The U.S. Treasury yields remained elevated in Asia trade after gaining in the previous session, as investors sold off the safe-haven bonds in the wake of the positive signs on the debt ceiling talks. The dollar was boosted by a surge in Treasuries' yields, which helped lift the value of the dollar. The dollar index edged lower against a basket of currencies on Wednesday, nearing its seven-week peak and last remained at 102.92.
The euro dipped near the previous six-week low, and last bought $1.0833, while sterling fell 0.09 percent to $1.2476.
We got some positive headlines over the debt ceiling negotiations so that obviously supported market sentiment, said Carol Kong, a currency strategist at Commonwealth Bank of Australia CBA. The two-year Treasury yield was last at 4.1543 per cent, having risen as much as 10 basis points in the previous session, while the benchmark 10 year Treasury yield was at 3.5660 per cent.
Early market action in Asia was partly influenced by the Aussie dollar, after data on Thursday showed that Australia's employment unexpectedly dipped in April, following two months of outsized gains. The jobless rate rose in a sign that the labor market may be cooling down.
The Aussie slipped about 0.4 percent after the data release and was last 0.16 percent lower at $0.66485.
While employment figures have deteriorated slightly, the Reserve Bank of Australia still considers employment to be tight. And that leaves the possibility for another hike or two at some point in future, unless inflation decreases faster than they currently anticipate, said Matt Simpson, senior market analyst at City Index.
The dollar surged to a two-week high of 137.745 yen, extending Wednesday's almost 1 per cent gain against the Japanese currency.
Dollar yen remains the market's favourite pair of risk sentiment, and on the back of some positive developments on the debt ceiling negotiations, we saw Dollar yen unwind some of the losses recently, CBA's Kong said.
The Kiwi dipped to $0.6259, a rise of 0.18 percent.
On Thursday, New Zealand announced a worse-than-expected budget deficit as a slowing economy and a lower tax take hit its coffers, leaving the Labour government on a tightrope as its spending plan is expected to fan inflationary pressures.
The Chinese yuan fell to its lowest level against the dollar since December, having weakened past the key 7 per cent level on Wednesday for the first time in five months, amid geopolitical tensions and more signs of China's post-COVID recovery losing steam.