June 14, 2013 / 3:56 AM / 4 years ago

FOREX-Dollar still off-colour as investors shelve bullish bets, wait for Fed

* Dollar and yen both under broad pressure as Wall St rallies

* Selling pressure from Japanese exporters weighs on USDJPY

* Aussie dollar falls after bouncing off multi-year lows

By Sophie Knight and Ian Chua

TOKYO/SYDNEY, June 14 (Reuters) - The U.S. dollar stayed on the back foot in Asia on Friday, having slumped to a fresh four-month low against a basket of currencies as a bounce-back in global equities saw investors favour the euro and commodity currencies.

The dollar index was at 80.774, not far off a low of 80.500 plumbed on Thursday. It was on track to post a loss of around 3 percent on a two-week period, its biggest such decline in over a year.

“A stress buildup is becoming increasingly apparent in FX markets...the US Dollar Index’s recent drop below the 200-day average argues for further profit taking,” wrote Barclays analysts in a note, referring to a level breached on Wednesday.

The euro held near late U.S. levels at $1.3352, after a slow-grinding rally beginning on May 17 took it to a four-month high of $1.3390 on Thursday.

The common currency’s next block of resistance is eyed at $1.346, but analysts say the ongoing rotation out of emerging currencies back could allow it to reach above $1.37 in coming weeks.

The dollar was still sluggish against the Japanese currency, losing 0.5 percent from late U.S. levels to 94.88 yen. Upbeat U.S. data had plucked it off a two-month trough of 93.75 struck on Thursday after a 6.4 percent rout in the Nikkei prompted investors to unravel their dollar hedges.

“This morning exporters sold off their dollars as soon as possible and pushed it down quickly. After that asset management guys jumped on the bandwagon to sell,” said the director of a research firm in Tokyo who did not want to be identified.

He also said that the downward pressure on the dollar/yen had been maintained into Friday’s session as Japanese companies were geared up for further dips.

“Whenever exporters push it down to 93 then the commercial side jumps on the bandwagon in a rush to sell dollars. And then importers see the dollar going down and they sit tight waiting for an even lower level to buy it.”

VOLATILITY

Extreme volatility in Japanese equities has unsettled the currency market, forcing many investors to unwind short yen positions and undoing much of the efforts of the Bank of Japan to stimulate the economy.

“After the dollar-yen recovered from its steep fall on June 6, I thought the BOJ meeting this week wouldn’t affect it so much - but obviously the central bank has not been able to dispel scepticism in the bond markets,” said Kazunori Kimura, strategist at SMBC Nikko Securities in Tokyo.

The dollar-yen suffered its largest fall in three years on Tuesday after the BOJ held off from additional measures to calm volatility in JGBs. That exacerbated market jitters about when the Federal Reserve will start scaling back its massive stimulus programme this year.

Markets are now waiting to see if Fed Chairman Ben Bernanke will try and soothe markets after the June 18-19 policy meeting.

“One way to view the markets since May is that participants have started to ‘grieve’ the loss of extreme Fed policy accommodation,” said Alan Ruskin, strategist at Deutsche Bank.

“For the coming week, markets should position for Bernanke trying to assuage market fears.”

Ruskin said Bernanke has a strong interest in making it clear that the timing of any withdrawal is data dependent and that the Fed chief needs to clarify some of the parameters behind a ‘tapering’ decision.

The Australian dollar pulled back 0.5 percent to $0.9597 on Friday after jumping nearly 2 percent to $0.9665 on Thursday to break well clear of a 33-month low of $0.8325 plumbed on Tuesday.

Our Standards:The Thomson Reuters Trust Principles.
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