* Aussie dollar hit by cbank comments, iron ore slide
* Yen helped by dwindling chance of near-term BOJ easing
* ECB easing expectations, election jitters hurt euro
(Updates prices, quotes)
By Patrick Graham
LONDON, May 20 The Australian dollar was the
main mover on major currency markets on Tuesday, falling 0.8
percent on the back of a slide in prices of iron ore, the
country's biggest export earner.
Other majors were back in tight ranges, although some
players said the euro was again looking shaky after two weeks of
hints of more monetary easing by the European Central Bank which
have shaken bets the single currency would top $1.40.
The Aussie has recovered solidly from lows reached in late
January but worries over the pace of growth in China continue to
weigh broadly on its outlook and Reserve Bank deputy governor
Guy Debelle said potentially slower capital inflows to Australia
pointed to more weakness.
More broadly, some currency analysts have seen signs in the
past few sessions of a shift by investors towards more
conservative plays, moving out of those currencies like the euro
and Aussie which investors have used to gain extra yield in
"There are signs out there which to me look horribly
familiar to for example 2007," said Simon Derrick, head of
currency research at Bank of New York-Mellon in London.
"The U.S. and Japanese equity markets are struggling now and
that would suggest to me that the upward momentum is beginning
to dry up. In that context the temptation is to take money off
He pointed to a number of catalysts overnight for the
Aussie's slide to 92.60, including Debelle's comments
and the concerns over iron ore receipts. The commodity dropped
to a 2-1/2-year low of $98.50 a tonne .IO62-CNI=SI for the
first time in more than two years, having been at $135 in
There had been hopes on Monday of a breakout higher for the
yen after it pushed through perceived important resistance
against the dollar around 101.20 yen per dollar. But price
action on the Japanese currency, the euro and sterling - the
latter after a jump in response to slightly higher than expected
inflation - all calmed in morning trade in Europe.
"The euro began to move a bit this morning but we have
settled back into the ranges now. The same goes for the yen,"
said Jane Foley, a strategist with Rabobank in London.
"The market just doesn't quite seem to have the enthusiasm
to follow through on any of these moves. For the yen, we have
had some better data and the BoJ will stick to its upbeat
message this week so that may be supportive."
The dollar traded at 101.36 yen, a day after falling
to 101.10 yen, its lowest level since early February. Against
the euro, it gained less than 0.1 percent.
The euro could face some pressure ahead of potentially
destabilising European Parliament elections later this week,
where votes for anti-austerity, eurosceptic parties look set to
Yields on Italian and Spanish government bonds rose on
Monday, as investors, concerned that a rise in eurosceptic
support could thwart reform efforts, took profits on recent
Yields were slightly lower on Tuesday but any broader
slackening off of interest in the periphery would be a bearish
sign for the euro.
"If the market starts to say that it has now filled its
boots with the rally in peripheral debt and it might be time to
back off, then that will certainly be a sign for the euro," said
In general, the jury is very much out on the fate of the
single currency ahead of next month's European Central Bank
meeting. Markets now firmly expect a cut in interest rates, but
it remains to be seen whether that will be enough to counter the
picture of positive capital flows that have kept the euro
surprising on the upside against the dollar this year.
Much will depend on what other kinds of action, if any, the
ECB takes or hints at. In that light there are several more
speeches due from bank officials on Tuesday.
The BOJ is widely expected to keep its policy unchanged at a
two-day policy meeting starting on Tuesday, with the market's
attention focussed instead on Governor Haruhiko Kuroda's news
"If Kuroda makes dovish comments tomorrow, then the
dollar/yen may manage to stay above the 200-day average," said
Osamu Takashima, head of FX strategy at Citigroup Securities in
"But if he intentionally stresses his optimistic economic
views, markets will take it as a sign he accepts a higher yen
and a fall in stocks."
(Additional reporting by Shinichi Saoshiro and Hideyuki Sano;
Editing by Susan Fenton and Susan Thomas)