* Market nervous ahead of Fed signals on stimulus
* Dollar/yen outlook tied to stocks, rather than U.S. bond
* U.S. CPI in focus ahead of Fed's meeting on Tues-Wed
* Aussie drops after dovish RBA minutes
By Hideyuki Sano
TOKYO, June 18 The U.S. dollar hovered above a
two-month low against the yen on Tuesday but struggled to extend
gains on worries the U.S. Federal Reserve could hint at
withdrawing stimulus and unsettle financial markets.
The Australian dollar slipped after the minutes of the
Reserve Bank of Australia showed the bank thinks the currency
remains high despite its recent steep decline and sees scope for
The dollar fetched 94.83 yen, up 0.3 percent from
late U.S. levels on Japanese importers buying. Yet it failed to
break above resistance at 95 yen, let alone Monday's high of
95.22 yen, and wasn't far off a two-month low of 93.75 set on
Ever since Japanese Prime Minister Shinzo Abe started
pushing late last year for radical monetary easing to revive the
economy, the dollar/yen pair has been driven by share price
moves, especially Japanese equities, rather than U.S. bond
yields, which traditionally have a strong correlation.
Speculation that Fed chief Ben Bernanke may indicate he
could start winding down its stimulus program has led to a
sell-off in global equities in recent weeks, helping the yen
post its best weekly gain in nearly four years against the
dollar last week.
Bernanke will hold a news conference on Wednesday after the
Fed's two-day policy-setting meeting starting later in the day.
"I tend to believe Bernanke will make comments supportive of
stocks and that the dollar/yen is more likely than not to rise,"
said a trader at a European bank.
On Monday, the U.S. currency eked out slim gains after data
showed growth in New York state's manufacturing sector picked up
in June, while sentiment among U.S. homebuilders surged to the
highest in seven years.
In a market preoccupied with the course of the Fed's policy,
U.S. consumer price data due at 1230 GMT is likely to attract
some attention as low inflation numbers in recent months have
helped the case for maintaining stimulus.
Economists expect the core consumer price index to have
risen 0.2 percent in May, or an annual inflation of 1.7 percent.
"A softer reading could fan expectations that the Fed will
strike a dovish tone, likely bringing down U.S. bond yields and
boosting stocks," said Junya Tanase, chief FX strategist at
Still, some analysts do not rule out the risk of a further
fall in the dollar/yen.
"The dollar had risen 24 yen since late last year and hasn't
come down even halfway from that. I expect continued weakness in
the dollar," said Daisuke Uno, chief strategist at Sumitomo
Mitsui Bank, noting that there are still big yen-selling
AUSSIE UNDER PRESSURE
The Australian dollar faced renewed selling pressure after
dovish minutes of the Australian central bank's last policy
The Aussie slipped 0.4 percent to $0.9519, edging
closer to a 33-month trough of $0.9325 set a week ago on worries
about a slowdown in China.
"At the moment, the Aussie is a currency you just need to
sell to make money. Unless its downtrend will have reversed,
hedge funds will keep selling it," said a trader at a Japanese
The euro stood little changed at $1.3355, still
within sight of a four-month peak of $1.3390 hit on June 13,
though it was capped by hedge selling related to an option
trigger at $1.34.
The common currency was underpinned partly because the
European Central Bank's policy is seen as less accommodative
than the Fed and the BOJ, both of which are actively expanding
their balance sheets at this point.
Although a prolonged economic contraction in the euro zone
dampens investment flows into the euro zone, the currency has
underlying support from the region's solid balance of payments,
with its account surplus hitting a record high in March.