Risk Currencies Recover from Friday Carnage, USD Consolidates

The Australian dollar and other riskier currencies recovered some lost ground against the U.S. dollar on Monday, after suffering their biggest plunges in a year at the end of last week amid a hefty selloff in global bond markets.

The greenback weakened broadly early in Asia trade, but barely enough to trim its biggest surge since June from Friday.

Currency markets have taken cues from the global bond market, where yields have surged in anticipation of an accelerated economic recovery.

The aggressive bond selling implies a bet that global central bankers will need to tighten policy much earlier than they have so far been forecasting.

Equities and commodities have also sold off as the debt rout unsettles investors.

USD direction is likely to hinge on not only the direction, but also the pace, of global bond moves, Commonwealth Bank of Australia strategists wrote in a research note.

Bond moves are trumping economic data as the driver of foreignexchange markets, with yields moving well in advance of economic fundamentals, they said.

The risk is tilted to a firmer USD this week because we doubt central banks will intervene in any meaningful way yet.

The Aussie jumped 0.6 to 0.7754 early in the Asian session on Monday, following a 2.1 plunge on Friday.

The New Zealand dollar strengthened 0.6 to 0.7270, recovering some of Fridays 1.9 slide.

The euro gained 0.2 to 1.20910, after dropping 0.9 at the end of last week, the most since April.

The dollar slipped 0.1 to…

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