* 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
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 and euro gained back some ground against the yen
but were firmly in recent ranges, reflecting the drop in
volatility that has accompanied the flood of money out of
emerging economies in search of traditional safe havens in the
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.
But 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
"The last year's story has been of a steady move back to
long-term fair value for many currencies and for the Aussie that
tends to point to levels around 83-84 (U.S. cents)," said Simon
Derrick, strategist with Bank of New York Mellon in London.
"So maybe we should not be so surprised that the RBA
(Reserve Bank of Australia) is starting to moderate its language
as we begin to get within sight of those levels."
After rising as much as 1.8 percent against the U.S. dollar,
the Aussie was trading 1.7 percent higher at $0.8893 in midday
trade in Europe.
There had already been signs of a turnaround in the Aussie's
performance against the New Zealand dollar in the past week. A
favourite trade for hedge funds late last year, the kiwi gained
9.5 percent against the Aussie between October and Jan. 24.
Since then the Aussie has reclaimed around 3 percent.
While the New Zealand economy continues to do better than
its Australian counterpart, analysts say a full percentage point
of rate hikes are now fully priced in, leaving room for some
Domestic politicians have also begun to sound disturbed by
the kiwi's strength.
"Clearly they are hoping that a similar story to the Aussie
plays out now for New Zealand, although they are burdened by a
very different monetary policy outlook," Derrick said.
"My view is that the kiwi should also begin to inch back
toward similar long-term averages around 83-84."
Still, the kiwi gained another 0.9 percent against the U.S.
dollar on Tuesday to trade at $0.8153.
The Aussie's jump 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 0.3 percent at 101.24 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, is 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 euro was also up around 0.3 percent against the yen at
136.91 yen, having set a two-month low of 136.37 yen on Monday.