FOREX-Dollar holds advantage over low-yielders, A$ looks to RBA

* Dollar firm vs euro, yen on brighter U.S. economic outlook
* ECB more cautious about higher bond yields
* ISM survey shows U.S. manufacturing at 3-yr high
* Australian dollar looks to RBA
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, March 2 (Reuters) - The dollar stood firm against its
low-yielding peers on Tuesday on bets of a faster economic
recovery and greater tolerance of higher U.S. bond yields, while
the Australian dollar looked to guidance from the country's
central bank.
The dollar index last stood at 91.014 =USD , having hit a
three-week high of 91.139 overnight, with its February peak of
91.600 seen as a possible next target.
The U.S. currency rose to 106.89 yen on Monday, its highest
since late August, and last stood at 106.84 yen JPY= while the
euro dipped to $1.2049 EUR= , near its lowest level in almost
two weeks.
The common currency was under pressure as top officials from
the European Central Bank sounded alarm over rises in bond
yields.
President Christine Lagarde said on Monday the ECB will
prevent a premature increase in borrowing costs for firms and
households. Policymaker Francois Villeroy de Galhau was even more
explicit, saying some of the recent rises in bond yields were
unwarranted and that the ECB must push back using the
flexibility embedded in its bond purchase programme.
Traders were quick to sense the marked difference in tone
between the ECB and the Federal Reserve.
Richmond Federal Reserve President Thomas Barkin said on
Monday the uptick in long-term bond yields so far seems to
suggest an adjustment to stronger growth and inflation outlook.
Atlanta Fed President Raphael Bostic said last week that
bond yields remain comparatively low, while Federal Reserve
Chair Jerome Powell has also shown no undue concerns about
rising bond yields.
"Central banks continue to take diverging views on the
signals sent by the recent rise in yields. The U.S. Fed is
taking it as a positive signal," Tapas Strickland, director of
economics and markets at National Australian Bank in Sydney,
said in a note.
The U.S. economic recovery is also seen on a firmer ground,
already bolstered by prospects of a $1.9 trillion relief package
from the Biden Administration and successful rollouts of
COVID-19 vaccinations.
A survey by the Institute for Supply Management (ISM)
released on Monday showed U.S. manufacturing activity increased
to a three-year high in February amid a surge in new orders.
As a result, the gap between U.S. and European bond yields
has been widening in a boost to the dollar; the 10-year yield
differentials between U.S. Treasuries US10YT=RR and German
Bunds DE10YT=RR reached 1.76% on Monday, the highest in a
year.
The safe-haven Swiss franc softened to a near four-month
high of 0.9160 franc per dollar overnight and last stood at
0.9146 CHF= .
Against the euro, the franc changed hands at 1.1023
EURCHF= to the euro, not far from a 1-1/2-year low of 1.1098
touched last week.
The Australian dollar traded at $0.7774 AUD=D4 , having
risen 0.75% on Monday on rising risk appetite, with focus now
squarely on the looming policy meeting of the Reserve Bank of
Australia.
The RBA's monthly policy meeting on Tuesday is widely
expected to reinforce its forward guidance for three more years
of near-zero rates.
It has stepped up bond buying following the global bond
market rout, and any further warning against rising yields could
cap its latest rebound, analysts said.
"The market has been in a euphoria for some time and
everybody says the dollar will weaken on rising risk appetite.
But oil prices dipped yesterday and gold also slipped. If
commodity markets are waking up to the reality, then we could
see some weakness in commodity-linked currencies," said Makoto
Noji, chief FX strategist at SMBC Nikko Securities.
Elsewhere, bitcoin also jumped back in tandem with gains in
risk assets, trading at $49,129 BTC=BTSP and pulling away from
Sunday's three-week low of $43,021.

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