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FOREX-Dollar hits 10-wk low versus yen, hedges unwound as Nikkei plunges
June 13, 2013 / 3:10 AM / 4 years ago

FOREX-Dollar hits 10-wk low versus yen, hedges unwound as Nikkei plunges

* Dollar has nearly erased post-BOJ gains against yen

* Dollar index hits four-month low

* Market seen unwinding overextended long USD positions

* Aussie still under pressure after employment report

By Sophie Knight and Ian Chua

TOKYO/SYDNEY, June 13 (Reuters) - The dollar fell to its lowest level against the yen in ten weeks as investors cautiously pared bullish bets on the greenback amid uncertainty about whether the Federal Reserve will pare back its stimulus programme.

Tumbling Japanese shares accelerated the dollar fall, as investors in the Nikkei continued to unwind hedges made earlier against a weaker yen.

The dollar dropped 1.3 percent to 94.78 yen after falling as low as 94.30. Both were levels unseen since April 4, when the Bank of Japan unleashed an audacious easing programme that accelerated the yen’s slide.

The dollar has now lost 8.6 percent since hitting a 4-1/2 year high of 103.74 on May 22.

The dollar-yen also fell below its daily Ichimoku cloud in a bearish signal. If it closes the session under 95.963, it will mark the first time it has finished the day below the base of the cloud since mid-October, when the dollar was around 78 yen.

Japan’s Nikkei share index skidded 5.3 percent in the morning session after falling as much as 6.6 percent. Recent losses for the Nikkei have sparked dollar selling as foreign investors unwound hedges they took out to protect themselves from a weakening yen.

“We’ve had this pattern of falls in stocks leading to a lower dollar-yen, and a falling dollar-yen triggering losses for the Nikkei. It’s a negative spiral,” said Masashi Murata, senior currency strategist at Brown Brother Harriman in Tokyo.

Investors snapped up Japanese shares between mid-November and May as a weakening yen promised to fatten exporters’ overseas revenues. Now a stronger yen threatens to do the opposite, leading to further sell-offs in the Nikkei.

Adding to the pressure, Japanese investors sold a net 386.9 billion yen ($4.04 billion) in foreign bonds in the week ended June 8, after selling 1,172.5 billion yen in the previous week, according to Ministry of Finance data.

The dollar lost 0.3 percent against a basket of currencies to 80.741, having plumbed a trough of 80.651, a low unseen since Feb. 20. It has now lost around 4 percent from a near three-year high of 84.498 set on May 25.

“While the DXY has broken below its 200-day moving average for the first time since February, we do expect the USD to eventually find a near-term base against JPY, EUR and GBP,” analysts at BNP Paribas wrote in a client note.

“In our view, G10 moves have been largely driven by the adjustment in overextended long USD positions rather than a changing perception of the U.S. growth or Fed policy outlook.”

Despite broad weakness in the U.S. dollar, the commodity currencies were still in the shade. The Australian dollar lost 0.3 percent even as data showed that unemployment fell 0.1 percent to 5.5 percent in May, beating expectations that it would stay steady.

The Aussie suffered deeper losses against the resurgent Japanese currency, slipping 0.2 percent to $0.9430 though it stayed clear of a 33-month trough of $0.9325 struck on Tuesday.

Weakness in the dollar saw the euro climb to a near four-month high of $1.3370. The common currency was last at $1.3362.

Perhaps explaining the resilience of the euro, a Reuters poll this week showed a vast majority of more than 60 economists do not expect the European Central Bank to cut interest rates. The survey also suggested the euro zone economy will return to modest growth in the second half of this year.

The New Zealand dollar dropped 0.3 percent to $0.7923 losing a bit of steam after the Reserve Bank of New Zealand (RBNZ) said it expects to hold interest rates steady at a record low for the rest of the year.

RBNZ Governor, Graeme Wheeler, also said the central bank is prepared to intervene should the kiwi dollar strengthen further.

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