FOREX-Aussie dlr reverses gains, slides to 3-yr low on RBA chief's comments

Tue Jul 2, 2013 11:51pm EDT

Related Topics

* Aussie under renewed pressure on RBA Governor comments

* Dollar edges down vs yen after touching 5-week high

* Lower volume on US holiday could lead to volatility

* Expectations of Fed's reduction of stimulus support dollar

By Lisa Twaronite

TOKYO, July 3 (Reuters) - The Australian dollar's tentative recovery unraveled on Wednesday as it skidded to a fresh 3-year low after the head of the country's central bank said it stands ready to support an economy shifting to a new source of growth as its long-run mining investment boom cools.

The U.S. dollar edged lower against the yen after earlier touching its highest level since late May, as investors positioned for a U.S. holiday and key jobs data that could heighten expectations that the Federal Reserve will begin to reduce its monetary stimulus in the coming months.

Speaking just a day after the Reserve Bank of Australia left its cash rate unchanged at a record low 2.75 percent, Governor Glenn Stevens said he was surprised by the resilience of the Australian dollar, but noted that free-floating exchange rates "do eventually adjust."

Stevens' comments sent the Aussie plunging as low as $0.9095 , from a session high of $0.9189. It was last down 0.3 percent at $0.9113.

The Aussie has come under heavy selling pressure in recent weeks as the U.S. dollar rose broadly on expectations the Fed would soon start to unwind its stimulus, and on slowing growth in China, Australia's major export market. The RBA's jawboning and dovish comments have accelerated the currency's fall from levels of over $1.00 seen as recently as on May 14.

U.S. financial markets will shut early on Wednesday and remain closed on Thursday in observance of the U.S. Independence Day holiday. Lower volume could lead to greater volatility, particularly ahead of Friday's release of the monthly jobs report for June.

Economists polled by Reuters expect payroll additions of 165,000 jobs last month and a lower unemployment rate of 7.5 percent.

The Fed has signaled its intent to begin to consider trimming its bond-buying stimulus as the U.S. economy improves. Such expectations have pushed up U.S. Treasury yields, which in turn have lifted the greenback.

A better-than-expected figure would likely push up both U.S. yields and the dollar. A disappointing figure would suggest the central bank will maintain its asset purchases for now, though some strategists and market participants believe it would not alter the overall trend toward a stronger dollar.

"Most believe that the Fed is mostly likely to taper at some point in 2013, so it's kind of like 'heads I win, tails you lose,'" said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York.

"You buy the dollar on expectations of strong data, and even if it's softer, there shouldn't be a resumption of strength in the yen," he said, with the Bank of Japan committed to maintaining its dramatic monetary easing to aim for its target of two percent inflation in two years.

Data on Tuesday backed stimulus-tapering expectations, as U.S. new motor vehicle sales in June were on track for their strongest month in more than 5-1/2 years, while factories posted a second straight month of gains in new orders in May. Home prices also posted their biggest annual increase in more than seven years.

The dollar inched down about 0.1 percent from late U.S. trade to 100.52 yen after advancing as high as 100.86 yen early in the session, its loftiest level since May 31. On that day, it rose as high as 101.27 yen, with the 101-yen level now seen as a key resistance point and stop-loss orders said to lie around it.

The dollar index held its ground despite the currency losing its footing against the yen and was steady at 83.557. It was not far from 83.613 reached on Tuesday, which was its highest since May 30.

The euro slipped about 0.1 percent to $1.2971, holding above its Tuesday low of $1.2962, which was its lowest since June 3.

The European Central Bank is likely to emphasise at its monthly meeting on Thursday that the euro zone economy still needs help.

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