(Corrects Japan data forecast’s unit to trillion from billion in paragraph 9)
* U.S. Treasury yields, Fed hike expectations underpin dollar
* Loonie pressured as Moody’s downgrades 6 Canadian banks
* NZ dollar tumbles after central banker says rate bias neutral
TOKYO, May 11 (Reuters) - The dollar edged up to eight week highs against the yen on Thursday in early Asian trading, as investors’ focus turned back to the strength of the economy and away from U.S. politics.
The dollar was slightly up on the day at 114.31 yen after earlier rising as high as 114.37, its highest since March 15.
The yen had gained in the previous session after U.S. President Donald Trump abruptly fired FBI Director James Comey, raising investors’ fears that the controversial move would lead to political turmoil and derail U.S. stimulus steps and tax reform.
Such fears were not entirely vanquished. Days before he was fired, Comey told lawmakers he sought more resources for his agency’s probe into possible collusion between Trump’s presidential campaign and Russia to sway the 2016 U.S. election, a congressional source said on Wednesday.
But with markets pricing in around a 90 percent chance that the economy is strong enough for the Federal Reserve to raise interest rates at its meeting next month, investors did not lose sight of fundamentals.
“Optimism about the U.S. economy is quite strong, and the dollar/yen’s downside is quite limited,” said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo. “My June forecast was 108, but I raised it to 115.”
Higher U.S. yields supported the dollar. The benchmark U.S. 10-year yield retested five-week highs overnight after an auction result suggested weak investor demand. It was last at 2.398 percent in Asian trading, not far from its Wednesday U.S. close of 2.410 percent.
The yen’s losses were limited by data out early on Thursday showing Japan’s current account surplus was 2.91 trillion yen ($25.45 billion) in March, supported by solid income from overseas investments, maintaining a trend that has continued for almost three years.
The result marked the 33rd straight month surplus month, finance ministry data showed, and beat the median forecast for a surplus of 2.643 trillion yen in a Reuters poll of economists.
The euro was steady from late North American levels at $1.0865. It was also steady against a basket of currencies, with the dollar index at 99.673.
The dollar rose against its Canadian counterpart after Moody’s downgraded the credit assessments, long-term ratings and counterparty risk assessments of six Canadian banks and their affiliates. It was last at C$1.3708, up 0.4 percent. Late last week it scaled a 14-month peak of C$1.3793, as slumping crude oil prices weighed on the loonie. Other factors adding pressure included U.S. duties on Canadian softwood lumber and a more uncertain outlook for the North American Free Trade Agreement under the Trump administration.
The New Zealand dollar skidded 1.6 percent to $0.6830 , after Reserve Bank of New Zealand Assistant Governor John McDermott said underlying inflation expectations in the country had not changed substantially from three months ago and the central bank has a neutral bias on interest rates.
“There is a lot of noise and some people are misunderstanding what they are seeing,” he said of inflation expectations, in an interview with Reuters. (Reporting by Tokyo markets team; Editing by Eric Meijer)