The dollar and the yen gained in thin trade as investors reduced
risk positions on Tuesday, while the Australian dollar fell ahead
of a central bank decision where it is widely expected to be keep
interest rates steady.
Global risk appetite has taken a beating in the past few weeks
on growing worries about the health of the euro zone's banking
system, a slowdown in China and risks of a double-dip recession in
the United States.
The dollar index, which tracks the performance of the greenback
against a basket of six major currencies, edged up 0.1 percent to
84.68 .DXY. The index's near-term support is seen at 84.132, a
seven-week low hit last week.
The safe-haven yen rose broadly after Harvard University
economist Kenneth Rogoff, a former International Monetary Fund
chief economist and an expert on banking crisis, told Bloomberg
Television that China's property market is beginning a "collapse"
that would hit banks.
Market players were watching whether the dollar could hold above
87.00 yen as options triggers are believed to be set below that
level, traders said. The greenback hit a seven-month trough of
86.96 yen last week on the back of growing worries about an
economic slowdown in the United States.
"Market participants have become very bearish on everything
against the yen and I am not sure why they have to be so
pessimistic," said a trader at a major Japanese brokerage.
Those concerns got fuel from a disappointing U.S. jobs report
last week which showed the economy shed 125,000 jobs in June.
The trader said speculative trades exaggerated a fall in the
cross/yen rates in subdued activity on Tuesday, as many investors
were waiting for U.S. players to return from a three-day
U.S. markets were closed for the Independence day holiday on
The dollar inched down to 87.53 JPY= from around 87.75 yen in
the previous day's late London trade.
In Asian trade, the euro fell as low as 109.14 yen EURJPY=,
finding support at 109.13 yen, the June 30 high.
The yen was further helped by a Nikkei business daily report
which said China had expanded its buying of Japanese government
bonds in the first four months this year, snapping up a net 541
billion yen of mostly short-term JGBs, double a record amount
logged in 2005, amid the euro zone debt crisis.
The report prompted hedge funds to sell the euro and other
currencies against the yen, traders said.
"Risk aversion continues to linger just below the surface and
further yen outperformance remains very likely over the short-term
as investors move into safe haven currencies," Matthew Strauss,
senior currency strategist at RBC Capital Markets wrote.
The euro slipped 0.2 percent to $1.2514 EUR=, below a 6-week
high of $1.2613 set last week.
In Asia, attention turns to the Australian dollar and the
Reserve Bank of Australia's (
) rate decision at 0430 GMT. [AU/INT].
The RBA is widely expected to leave rates on hold at 4.50
percent for a second straight month. Investors will scrutinise the
accompanying statement for the RBA's take on the financial market
turmoil and the risks of a global double-dip recession.
Any added emphasis on the global troubles would reinforce
expectations that rates will be on hold for months and could lead
to a minor sell-off in the Aussie.
The Australian dollar was at $0.8359 AUD=D4, well off Monday's
high of $0.8467. Against the Japanese currency, the Aussie slid 0.7
percent to 73.16 yen AUDJPY=R. (Additional reporting by Anirban Nag
in Sydney; Editing by Edwina Gibbs)