Dollar hits two-decade high amid rising US rates, Ukraine war, China's lockdowns

Surging inflation, the war in Ukraine, and tighter lockdowns against COVID-19 in Beijing and Shanghai, have left investors uncertain on many counts, but they are sure that U.S. interest rates are going up -- and the dollar is following.

"Moves in U.S. interest rates are not the only dollar support," said strategists at NatWest Markets in a note.

"Downside risks to global growth stemming from Ukraine and China are more pressing for Europe and Asia relative to the U.S., creating an air of 2018-style dollar exceptionalism."

The greenback made a 22-month high on the growth-sensitive New Zealand dollar and rose 1% to a three-month high against the Australian dollar as Asia's stockmarkets tumbled. It rose 0.3% to its highest since 2019 on the Swiss franc.

The euro was down 0.4% at $1.0508 and a whisker above a recent trough of $1.0469. The yen was close to two-decade lows at 130.96 per dollar, while sterling wallowed at $1.2294, barely above Friday's 22-month low. The Canadian dollar hit its lowest since December.

In China trade data showed imports flatlined in April and exports rose 3.9% - a little better than expected and enough to hold the Australian dollar at $0.7006 and off January's low of $0.6967. Read full story

However the yuan was dragged to a fresh 18-month low of 6.7110 per dollar as lockdowns in Shanghai were tightened. Traders see the fallout from the inevitable drag on China's economy raking across the region.

The kiwi fell 0.9% to $0.6346 and the U.S. dollar made multi-year highs on the trade-sensitive Taiwan dollar, South Korean won, Singapore dollar and Malaysian ringgit.

It hit its highest in nine months against the Indonesian rupiah.

FORGOTTEN DREAM

The yield on benchmark 10-year U.S. government bonds has climbed a staggering 163 basis points this year and taken the dollar with it.

The dollar index is up nearly 9% for the year and gained for a fifth week in a row last week. It equalled Friday's near 20-year high of 104.070 during the jittery Asia session.

Speculation that Russian President Vladimir Putin might declare war on Ukraine in order to call up reserves during his speech at "Victory Day" celebrations also hurt market sentiment.

Putin has so far characterised Russia's actions in Ukraine as a "special military operation", not a war, or an invasion.

The U.S. Federal Reserve hiked its benchmark funds rate 50 basis points (bps) last week and strong jobs data has reinforced bets on further big hikes, with inflation figures due on Wednesday in focus as next risk of an upside surprise.

Futures markets are pricing a 75% chance of a 75 bp rate rise at the Fed's next meeting in June and more than 200 bps of tightening by year's end.

"Risks around U.S. CPI feel binary; a moderation from 8.5%would be mildly comforting, but a lift would doubtless revive expectations for 75 bp Fed hikes, and probably give the dollar a boost," said analysts at ANZ Bank.

"The idea that synchronised global tightening might proceed gently now feels like a forgotten dream."