TOKYO (Reuters) – The safe haven yen fell to its lowest level in nearly three months on Monday, while the risk-sensitive Australian dollar continued to recover from a nearly one-month low , while fears of a generalized contagion of the China Evergrande group faded.

The yen also fell as rising US yields lured money from Japanese investors, while rising commodity prices helped the Aussie and the Norwegian krone.

US yields hit their highest since early July in anticipation of a tightening of US monetary policy, as the dollar hovered in the middle of its range last week against its major peers.

The euro traded little at $ 1.1724, largely ignoring the development of the weekend’s German election as the Social Democrats narrowly defeated the conservative CDU / CSU bloc.

The Federal Reserve said on Wednesday it would likely start cutting its monthly bond purchases as early as November and reported interest rate hikes could follow sooner than expected, with half of the Federal Open Market Committee members anticipating an increase next year.

“The USD will likely remain caught in the cross-currents of a more hawkish FOMC and concerns about a possible Evergrande default are fading,” Commonwealth Bank of Australia analysts wrote in a client note.

“Nonetheless, the risks are skewed towards a stronger dollar,” they said.

Fears that China’s second-largest developer Evergrande might default on its $ 305 billion debt have eclipsed trade in recent weeks, but some of those contagion fears are fading.

The People’s Bank of China injected net 100 billion yuan ($ 15.47 billion) into the financial system on Monday, adding to last week’s net 320 billion yuan, the highest number since January.

Several local governments in China have set up special custodian accounts for Evergrande real estate projects to protect funds for housing projects from embezzlement, Caixin news outlet reported over the weekend.

The yen weakened to 110.81 per dollar, hitting a low on July 7, before trading little changed at 110.67.

The benchmark 10-year US Treasury yield hit 1.466% for a second day on Monday, the highest since July 2.

“The correlation between US bond yields and USDJPY has strengthened,” Chris Weston, head of research at broker Pepperstone in Melbourne, wrote in a client note.

“USDJPY looks a bit stretched so I would be careful to continue here but look for a new test of 110.50 as a potential support area in what is a gradually uptrend.”

The Aussie climbed 0.37% to $ 0.7282, from $ 0.72205 a week ago, its lowest since August 24.

The Norwegian krone gained around 0.4% and hit 8.5537 to the dollar for the first time since July 6.

($ 1 = 6.4662 Chinese renminbi yuan)

(Reporting by Kevin Buckland; Editing by Ana Nicolaci da Costa)

Copyright 2021 Thomson Reuters.

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