* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
LONDON, Oct 18 (Reuters) - The U.S. dollar headed back on
Monday towards a one-year high hit last week as rising inflation
expectations and higher bond yields boosted its appeal against
its rivals, with the New Zealand dollar bucking the trend thanks
to strong data.
U.S. Treasury yields firmed on Monday, extending a trend in
recent weeks with five-year bond yields rising to
their highest levels since February 2020 as investors ramped up
bets that the U.S. Federal Reserve was preparing to raise
interest rates as early as next year.
The inflation outlook has also prompted expectations of
earlier tightening of global monetary policy, with Danske Bank
expecting as much as two rate hikes from the Fed in the second
half of next year.
"For some time our central argument has rested on two
factors coming together to support the dollar, namely the
moderation in global growth and the Fed taking a gradual path
towards eventual rate hikes," HSBC analysts said in a note.
"This occurred sooner than we expected."
The dollar index rose 0.1% to 94.02, edging it back
toward last week's one-year high of 94.563 which was the highest
level since September 2020.
In New Zealand, where consumer prices zoomed higher at their
fastest clip since 2010, analysts reckoned the central bank
would need to stay the course on its hiking trajectory even as
the lockdown of Auckland was extended.
The kiwi was an outlier, having jumped almost 0.5%
to a one-month high of $0.7105 before easing back to flat at
$0.7070 after a decade-high quarterly inflation reading. NZD/
Sterling also managed to hold on close to steady
after hawkish weekend remarks from Bank of England Governor
Andrew Bailey who said policymakers "will have to act" as energy
prices drive consumer prices higher.
In other data highlights, China's economic growth hit its
slowest pace in a year in the third quarter, with power
shortages crimping factory output - while in commodities, crude
prices rose more than 1% to test 2018 highs.
The yuan eased slightly after the data. But taken
together, China's slowdown, power crunch and worldwide signs
that pressure from energy costs is hurting, seemed to turn
investors broadly cautious as they brace for a bumpy period.
(Reporting by Saikat Chatterjee and Tom Westbrook in SINGAPORE;
editing by Philippa Fletcher)