* Euro little changed after German elections
* Risk FX rallies, safe havens offered
By Ritvik Carvalho
LONDON, Sept 27 (Reuters) – The risk-sensitive Australian dollar rallied and the safe-haven yen dipped to a nearly three-month low on Monday, as fears of widespread market contagion from indebted China Evergrande Group receded.
Rising commodity prices also helped the Aussie and Norway’s crown, while the yen was pressured as higher U.S. yields attracted Japanese investor money.
The euro traded little changed at $1.17205, largely ignoring developments in German elections at the weekend, with the Social Democrats projected to narrowly defeat the CDU/CSU conservative bloc.
The dollar index, which measures the U.S. currency against six major rivals, hovered in the middle of its range of the past week, trading slightly higher at 93.40.
“It seems to be pretty much a continuation of last week, high-betas performing well, havens lagging behind the pack, with the FX market really just following the improvement in sentiment that we have seen more broadly – stocks snapping a two-week losing run, and yields rising quite sharply,” said Michael Brown, senior market analyst at Caxton FX.
U.S. yields climbed to their highest since the start of July in anticipation of tighter U.S. monetary policy after the Federal Reserve announced last week that it may start tapering stimulus as soon as November and flagged interest rate increases may follow sooner than expected.
“USD is likely to remain caught in the cross-currents of a more hawkish FOMC and fading concerns around a potential Evergrande default,” Commonwealth Bank of Australia analysts wrote in a client note.
“Nevertheless, the risks are skewed to a firmer USD,” with any renewed Evergrande worries unlikely to trigger the level of market volatility of last week, they said.
Concerns that China’s second-largest developer Evergrande could default on its $305 billion of debt has overshadowed trade in recent weeks, but some of those contagion fears are receding.
The People’s Bank of China injected a net 100 billion yuan ($15.5 billion) into the financial system on Monday, adding to the net 320 billion yuan last week, the most since January.
Several local governments in China have set up special custodian accounts for Evergrande property projects to protect funds earmarked for housing projects from being diverted, media outlet Caixin reported on the weekend.
The yen weakened as far as 110.81 per dollar, matching a low on July 7, before trading slightly stronger from the end of last week at 110.645.
That followed moves in benchmark 10-year U.S. Treasury yields, which touched 1.4660% for a second day on Monday, the highest since July 2, before easing back to 1.4527%.
“The correlation between U.S. bonds yields and USDJPY has picked up,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.
“USDJPY looks a little stretched, so I’d be wary to chase here, but I would be looking…
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