UPDATE 2-Dollar falters as Iraq air strike order saps risk appetite

Thu Aug 7, 2014 11:24pm EDT

Related Topics

* Dollar hits 2-week low versus safe haven yen

* Euro fall slows as dollar takes hits

* Aussie slips to 2-mth low but pares losses on China data (Adds reaction to BOJ, China trade data)

By Shinichi Saoshiro

TOKYO, Aug 8 (Reuters) - The dollar slipped against the safe haven yen on Friday after news that U.S. President Barack Obama had authorised air strikes in Iraq added to simmering geopolitical tensions and sapped risk appetite.

Obama said in an address that he authorised targeted strikes to protect the besieged Yazidi minority and U.S. personnel in Iraq, after the Iraqi government requested help.

The benchmark U.S. Treasury yield fell to a 14-month low as bond prices rose in the wake of the air strike news, further dampening demand for the dollar.

"Risk assets and dollar/yen are being sold after news of the airstrike. There was already talk of the air strike (authority being granted) overnight and now that it has been confirmed, the market is trying to digest it," said a trader at a large Japanese bank in Tokyo.

Tokyo's Nikkei stock average shed 3 percent and other Asian bourses also fell across the board.

"Now it's up to how far the flight from risk assets will go. There are many views on the U.S. involvement in Iraq, but it doesn't look like the operations will end any time soon," the trader said.

The dollar was down 0.3 percent to 101.79 against the yen, traditionally sought in times of global tension, having fallen as low as 101.58, a two-week trough.

The greenback had already suffered losses overnight on concerns over the escalating conflict in Ukraine and a Russian ban on Western food imports.

"Broadly speaking dollar/yen is still in a range centred around 102. But it failed to establish a foothold above 103 last week after the weaker-than-expected U.S. non-farm payrolls," said Masafumi Yamamoto, market strategist at Praevidentia Strategy in Tokyo.

"With the economic impact of the Ukrainian conflict now drawing more attention and Treasury yields declining, downward bias for the dollar is building," he said.

The yen showed little reaction to Bank of Japan's widely expected decision to stand pat on monetary policy.

With the dollar taking hits, the euro managed to slow its slide, having fallen on Thursday after European Central Bank President Mario Draghi struck a cautious note on the euro zone economy.

The European Central Bank's decision on Thursday to leave interest rates unchanged on Thursday was not unexpected, but Draghi said the Ukraine crisis threatened the economy and weakened the euro.

The euro traded little changed at $1.3361 after shedding about 0.15 percent overnight. The common currency, which hit a nine-month low of $1.3333 on Wednesday, stands to lose about 0.5 percent on the week.

The Australian dollar, already bruised on Thursday after data showed a surprising jump in the domestic unemployment rate, extended losses after the Reserve Bank of Australia stuck to its stance of keeping interest rates at a record low for some time yet.

The Aussie pared some losses after exports from China, Australia's major trading partner, jumped 14.5 percent in July from a year earlier.

The Aussie was down 0.2 percent at $0.9255 after falling to as low as $0.9240, the lowest since early June. (Editing by Shri Navaratnam, Eric Meijer and Simon Cameron-Moore)

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