FOREX-Yen dips on modest reduction in risk aversion, markets still wary
* Yen posts modest losses vs dollar, euro
* Focus on U.S. consumer prices data later in session
* Aussie up after RBA gov makes no mention of currency (Adds details, quotes)
By Shinichi Saoshiro
TOKYO, July 22 (Reuters) - The yen dipped against the dollar and euro on Tuesday on a slight reduction in geopolitically-inspired risk aversion that lifted equities across Asia.
Still, markets were unable to fully shake off geopolitical concerns as tensions in the Ukraine and Gaza remained high, keeping the dollar and euro in a narrow corridor against the Japanese currency
"Geopolitical developments channelled through higher oil prices will remain key theme this week," said Shinichiro Kadota, chief FX strategist at Barclays Bank in Tokyo.
"Heightened geopolitical risk accompanied by higher oil will help the yen and Swiss franc appreciate while weighing on the Australian and New Zealand dollars. Emerging market currencies from Taiwan, Singapore, Korea, Thailand and India are also vulnerable to higher oil," he said.
Oil prices have risen as the threat of escalating tension between Russia and the West over the crisis in Ukraine mounted, with U.S. crude surging to a three-week high on Monday.
The euro edged up 0.1 percent to 137.25 yen after crawling back from a five-month trough of 136.71 yen hit late last week when a Malaysian airliner was downed over Ukraine and an Israeli ground offensive in Gaza began.
Against the dollar, the common currency was effectively flat at $1.3525 after recovering from a five-month trough of $1.3491 touched on Friday.
The dollar crept up 0.1 percent to 101.49 yen, having pulled back from a low of 101.09 hit late last week.
"Although caution towards the yen garnering bids remains, the overall trend is dollar-supportive, with the Federal Reserve poised to exit monetary easing eventually," said Junichi Ishikawa, market strategist at IG securities in Tokyo.
"Dollar/yen could gain further upward momentum if it goes above the 21-day moving average (at around 101.60) as that would trigger rounds of short covering. But it is likely to face resistance at 102.00, where dollar-selling orders by Japanese exporters are said to be lined up," he said.
Aside from geopolitical developments, participants kept an eye on the U.S. consumer prices data due at 1230 GMT. Focus was on whether the dollar would react if the data proved strong enough to raise expectations for accelerated monetary tightening by the Federal Reserve.
The Labor Department is expected to report that U.S. inflation pulled back to a month-on-month rise of 0.3 percent June, after rising food prices saw the index rise 0.4 percent in May, its biggest increase in more than a year.
The Australian dollar was up 0.2 percent at $0.9387 , touching intraday highs after Reserve Bank of Australia Governor Glenn Stevens refrained from commenting on monetary policy and the Aussie's levels in a speech.
The speech by the RBA governor garnered particular attention after he surprised the markets earlier in the month and knocked the Aussie lower by warning investors they were underestimating the risk of a significant fall in the Australian dollar. (Editing by Shri Navaratnam)
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