Dollar wavers near multi-month lows as Treasury buyback plan spooks markets

The US dollar remained on the back foot in Asian trading on Monday, hovering near multi-month lows as markets digested the Treasury's plan to increase buybacks of long-dated bonds. The move, seen by some as an interventionist attempt to manage yields, has revived concerns about the currency's long-term value.

In early trade, the Canadian dollar slipped 0.2% against its US counterpart after trade talks with Washington collapsed, prompting both nations to impose retaliatory tariffs. Elsewhere, the Australian and New Zealand dollars traded just below their three-month highs, while the euro held comfortably above $1.16 and the yen remained on the strong side of 159 per dollar.

Friday's data showing the strongest US services growth in nearly two years provided some support, but the broader mood remained cautious. The dollar posted its largest weekly drop against bitcoin in nearly three-and-a-half years, and has slid sharply against gold, as investors fret over the potential for currency debasement.

The unease stems from a global rise in long-end yields, driven by solid growth, rising inflation expectations, and concerns over ballooning sovereign debt. After 30-year Treasury yields hit nearly two-decade highs, the Treasury announced it would double its buyback operations at the long end to $4 billion per operation. While the size is small relative to the $32 trillion market, the signal has spooked traders.

"The US Treasury's attempts to artificially hold down long-term bond yields appears to be reigniting the $US debasement trade," said Shane Oliver, head of investment strategy at AMP. This sentiment has helped keep the Australian dollar above 71 cents.

Sterling was firm at $1.3650, and the yuan hovered near a 3-1/2 year high at 6.7222 per dollar after an eighth straight weekly rise.

Attention now turns to a press conference by US Treasury Secretary Scott Bessent later on Monday, where he is expected to provide details on threatened sanctions against Iran. Markets will be watching closely for any mention of China. Iran's foreign minister has dismissed the threats as a sign of desperation.

Investors will also look to Federal Reserve Chairman Kevin Warsh's speech in Jackson Hole on Friday for clarity on interest rates and potential comments on the Treasury's buyback program. "Any comments on the balance sheet, duration supply, or term premium could move the long end more than the data itself," said BNY strategist Geoff Yu, though he noted Warsh's typically restrained style.

A Thursday appearance by Bank of Japan Deputy Governor Ryozo Himino will also be closely watched as a prelude to next month's policy meeting. Investors will look for signals on the pace of future rate hikes. "Himino may signal the BOJ is moving closer to another interest rate hike," said Joe Capurso of Commonwealth Bank of Australia, though he added that US bond market developments remain the more important driver for USD/JPY.