* Aussie jumps after RBA drops easing bias
* Yen eases back from previous day's 2-month high vs dollar
* Selling of yen by Japanese banks supports dlr/yen -trader
* Disappointing U.S. ISM data sparks rout in risk demand
By Patrick Graham
LONDON, Feb 4 The Australian dollar
surged almost two percent on Tuesday after the country's central
bank dropped its bias towards easing interest rates and toned
down its long-term call for the currency to weaken.
The dollar, yen and euro were all broadly stable, reflecting
a drop in the volatility that has accompanied the flood of money
out of emerging economies in search of traditional safe havens
in the developed world.
The Aussie has fallen by almost a fifth in the past 12
months as a commodities boom expired, growth in China began to
slow and the central bank campaigned for a weaker currency to
help stir economic growth.
Some strategists have begun to turn more positive and there
has also been talk in the market of Chinese investors buying the
Australian currency at the start of the Year of the Horse. But
the Reserve Bank of Australia's signals on Tuesday were a
surprise to many.
"Together, these statements suggest that the exchange rate
is approaching levels at which the RBA is more comfortable and
that policymakers are removing the threat of using their most
powerful tool to drive it lower," Citibank analysts said in a
note for European clients.
"This will be viewed as the market as an all-clear signal on
the currency and is likely to invite a further reversal of short
positions among leveraged investors."
The Aussie's jump - as much as 1.8 percent against the
greenback - came as the yen eased back from a two-month high
versus the U.S. dollar, though its losses were tempered by
fragile sentiment after a disappointing reading on U.S. factory
activity stirred concerns about the growth outlook.
The U.S. dollar was up 0.2 percent at 101.16 yen,
staying above Monday's low of 100.77 yen, its lowest level
against the Japanese currency since Nov. 21.
Yen-selling flows from Japanese banks helped lend support to
the dollar, said a trader for a European bank in Tokyo. A
Singapore-based trader cited dollar buying by Japanese
The yen, a big loser against the dollar in the past year,
has seen a turnaround in the past week on the back of the
sell-off in emerging markets, the dollar falling back from a
peak of 105.40 yen hit earlier in January.
Many analysts believe the flow of money out of the
developing world will continue as the U.S. Federal Reserve
proceeds with reductions in its bond-buying stimulus.
A poor ISM readout on U.S. manufacturing on Monday prodded
U.S. Treasury yields lower but, along with similarly poor jobs
data last month, are largely being put down to bad weather
rather than any fading of the economic recovery.
"The cold wave is said to have had some impact on the ISM,
and I think it is premature to make a judgment that the trend in
the U.S. (economy) has been broken," said Daisuke Karakama,
market economist for Mizuho Bank in Tokyo.
The yen held steady against the euro, which last stood at
136.64 yen. The euro set a two-month low of 136.37 yen on
Monday. The common currency eased 0.1 percent to $1.3507.