FOREX-Dollar tumbles vs yen after jobs shock prompts stimulus rethink

Mon Jan 13, 2014 8:14am EST

Related Topics

* Yen at near-one-month highs versus dollar, euro

* Aussie hits one-month high, Kiwi at near-two-month high

* Canadian dollar falls again after jobs data

By Laurence Fletcher

LONDON, Jan 13 (Reuters) - The dollar tumbled to its lowest in almost a month against the yen on Monday, as investors caught out by Friday's soft U.S. jobs data reassessed how quickly the Federal Reserve might scale back its stimulus.

The dollar's weakness also helped push the Australian dollar to a one-month high and the New Zealand dollar to a near-two-month high against the greenback.

The U.S. dollar slid 0.7 percent to 103.37 yen, having fallen to 103.26 at one point, its lowest level since Dec. 18. The greenback's losses accelerated after it breached Friday's intraday low of 103.83 yen.

Dollar/yen was one of the strongest-performing major currency pairs last year and many hedge funds have been betting the trend will continue as the Fed cuts back its huge bond-buying programme and on expectations the Bank of Japan will provide even more stimulus this year.

But many traders were taken by surprise by the U.S. non-farm payrolls data, which showed a rise of 74,000, well short of the 196,000 analysts had expected.

"People have come into this year with very strong pre-conceived ideas of what's going to happen," said Paul Chappell, CIO of UK-based hedge fund firm C-View, pointing to consensus bets on dollar strength and emerging market currencies weakness.

"If you're positioned very much in that direction, if anything interrupts that (then your position will suffer)."

Yields on 10-year U.S. Treasuries, which were above 3 percent in the middle of last week, have fallen to around 2.85 percent, their lowest since mid-December, lending less support to the dollar.

The implied yields on Fed funds futures also tumbled as markets pushed back the timing of the first interest rate hike out towards late-2015 from mid-2015.

Investors were also looking for direction with Japanese financial markets closed on Monday for a public holiday.

"The market is taking its leads from U.S. Treasury markets, which are generally weighing on the dollar across the board," said Adam Cole, global head of FX strategy at RBC Capital Markets.

"One of the strongest consensus views was that the dollar would outperform. Markets didn't have a (jobs) number like that on the radar at all." He said he expects the dollar to soften against the yen this quarter.

Dollar selling against major currencies was driven by computer portfolios, according to one London-based trader.

The yen also pushed higher versus the euro, which fell 0.7 percent to 141.39 yen. The euro touched a low of 141.135 yen, its lowest level in nearly a month.

The euro was up marginally against the dollar at $1.3670 , staying above a one-month trough of $1.3548 hit on Thursday.

Volumes were high in the Australian dollar, which has been weak against the U.S. dollar in recent months after comments by the central bank governor that he would prefer to see the local dollar lower. The Aussie hit a one-month high of $0.9073 and was last at $0.9050, up 0.6 percent.

The New Zealand dollar rose 0.7 percent to $0.8358.

The Canadian dollar headed back towards its lowest in more than four years against the greenback after data showed the country unexpectedly shed jobs last month.

The loonie, which fell in every session last week against its U.S. peer, last stood at C$1.0916 per dollar. The U.S. dollar had scaled a peak of C$1.0946 on Friday, the greenback's strongest level since October 2009.

Fawad Razaqzada, technical analyst at FOREX.com, pointed to a 12-year-old bearish trend line in the Canadian dollar at around the C$1.0945-1.1000 level.

"(The) price has already tested the lower end of this range on Friday. So far, however, the pullback has been very limited but the longer price holds below this range, the more likely we will see a pullback," he said.

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