Home / Market / Stock-market-news /  US dollar extends loss amid drone concern, oil prices rise for second day

Sydney/ Tokyo: The dollar retreated versus most major peers, as heightened geopolitical tensions over China’s seizure of a US naval drone added to reasons for traders to pull back amid the greenback’s strongest rally since 2008. Australian and New Zealand stock markets rose as US equity futures rebounded.

Japanese shares declined as the yen led gains among major currencies after news that broke Friday on the confrontation drove up Treasuries. Contracts on US indexes rose Monday. Crude oil gained, extending a climb from last week as an increase in maritime tensions could crimp deliveries. The offshore yuan jumped by the most in two weeks after the People’s Bank of China raised its fixing for the currency onshore. Australia’s currency swung between gains and declines after the government forecast a slightly narrower deficit this fiscal year as it bids to stave off a credit rating downgrade.

Traders will be monitoring developments after US President-elect Donald Trump lashed out at China over the weekend, while China’s Communist Party-affiliated Global Times mocked Trump’s demeanour as “lagging far behind the White House spokespersons."

The incident threatens to impede the momentum of what has been called the global reflation trade: gains in stocks and the dollar and a slide in bonds, spurred by prospects that Trump’s spending agenda will fuel inflation in the world’s biggest economy. Volumes are expected to thin in coming weeks before the December holiday season and end of the year, with the Bank of Japan’s policy decision on Tuesday the last Group of Seven central bank meeting for 2016.

“I can’t see the dollar index in a sustained rally—two rate hikes are priced into fed funds futures, and a lot of expectation is built into Trump’s policies," said Janu Chan, a senior economist at St. George Bank Ltd. in Sydney. “On the other side of the equation, the ECB and BOJ are not likely to ramp up monetary stimulus anymore. Profit taking is most likely behind current U.S. dollar weakness, but it’s possible it’s also due to geopolitical concerns on the reports that China seized the U.S. drone." Bloomberg

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