FOREX-Dollar scales 5-yr peak against yen as markets brace for Fed meeting

Fri Dec 13, 2013 12:45am EST

Related Topics

* Upbeat U.S. retail sales data helps lift greenback

* Dollar index climbs off six-week lows

* RBA head again talks down Australian dollar

By Lisa Twaronite and Ian Chua

TOKYO/SYDNEY, Dec 13 (Reuters) - The U.S. dollar clambered to a 5-year peak against the yen in Asia on Friday, after upbeat U.S. retail sales data stoked expectations the U.S. Federal Reserve could start scaling back its massive bond buying stimulus as early as next week.

The Fed will hold its last policy meeting of 2013 on Tuesday and Wednesday next week, with traders bracing for what could be a close call on the tapering decision. Data released on Thursday showed U.S. retail sales rose solidly in November and the past month was revised higher.

That prompted some analysts to lift their fourth quarter GDP growth estimates by as much as half a percentage point to as high as a 2.2 percent annualised rate.

U.S. Treasury yields rose, pushing the benchmark 10-year yield to 2.88 percent, within sight of its 2013 peak of 3.01 percent set in September.

The dollar was last up 0.4 percent at 103.82 yen after rising as high as 103.88 yen on the EBS trading platform, its highest level since October 2008.

"I think many think the dollar will go over 104 within this year, but it might have difficulty reaching that level," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"If the Fed does not move to reduce stimulus next week, and doesn't strongly hint that it will soon, there could be a correction because there are so many yen-short positions," he said.

The dollar index rose about 0.1 percent to 80.263 as the dollar rode the yen higher, pulling further away from a six-week low of 79.757 plumbed on Wednesday.

The euro slipped slightly to $1.3746 from a six-week high of $1.3811 hit on Wednesday.

Data showing euro zone industrial output fell in October at its steepest monthly rate in more than a year pressured the common currency.

The report was a timely reminder for euro bulls, as it highlighted the fragility of the bloc's economic recovery and supported the case for further stimulus from the European Central Bank.

The euro still managed to gain against the yen, rising to a fresh five-year high of 142.82 and was last up 0.4 percent at 142.73 yen.

With the Bank of Japan intent on maintaining its ultra-loose monetary policy, many say the yen is poised to make a comeback as the funding currency of choice.

But this time, investors seeking carry are eschewing traditional high-yielding currencies such as the Australian dollar, Indian rupee and Indonesian rupiah in favour of the stability of the Singapore dollar and Chinese yuan.

The Australian dollar came in the crosshairs of sellers on Friday after Reserve Bank of Australia Governor Glenn Stevens again said he would prefer to see the local dollar lower as a boost to trade-exposed sectors of the economy.

While Stevens said he did not have a specific target for the currency, he noted that he had thought 85 cents was a more reasonable level than 95 cents.

Investors, already bearish on the Aussie dollar, knocked the currency to its lowest in over three months after Stevens' comments. It dropped as low as $0.8910, following up a fall of more than 1 percent on Thursday, and was last down 0.1 percent at $0.8922.

Immediate support is seen at $0.8848, the trough set in August.

"Clearly, these comments open up the scope for a further move lower in AUD/USD in end-of-year markets that are already exhibiting signs of lower liquidity," said Sally Auld, strategist at JPMorgan in Sydney.

"And while the market might not gravitate towards the 85 level immediately, it nonetheless provides some clarity around the broad level of the AUD/USD that might be deemed appropriate by policy makers."

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