Dollar trades near multi-month lows, restrained by debt nerves

The US dollar experienced a dip near multi-month lows on Monday, as the US Treasury announced plans to double long-end buybacks to US$4 billion following 30-year yields reaching two-decade highs. The Canadian dollar also weakened, slipping 0.2% to C$1.3798 per dollar, following the collapse of trade talks with the US and the imposition of 50% tariffs on Canadian goods.

The Australian and New Zealand dollars traded close to three-month highs at US$0.7171 and US$0.5979 respectively. The euro was above US$1.16 at US$1.1685, while the yen remained strong at 159 per dollar. Strong US services growth in August provided a brief respite for dollar sellers, but concerns over ballooning sovereign debts and revived fears about the currency's fate if the US tries to keep yields low, continued to weigh on the dollar.

Analysts noted that while the US Treasury's interventionist signal may have spooked traders, the size of the buyback operation was relatively small compared to the US$32 trillion market. Market participants will be watching for clarity on US interest rates and the potential impact of the Federal Reserve's Scott Bessent press conference, as well as potential comments on the balance sheet, duration supply, or term premium from Federal Reserve Chairman Kevin Warsh.