February 4, 2014 / 5:00 PM / in 4 years

FOREX-Aussie surges after central bank's policy turn

* Aussie gains nearly 2 percent on U.S. dollar after RBA
drops easing bias
    * Kiwi climbs over 1 percent versus greenback
    * Dollar gains on euro and yen
    * Selling of yen by Japanese banks supports dollar/yen

    By Daniel Bases
    NEW YORK, Feb 4 (Reuters) - The Australian dollar 
surged nearly 2 percent on Tuesday after the country's central
bank dropped its easing bias toward 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 accompanied the flood of money out of emerging
economies in search of traditional safe havens in the developed
    "Most of the market was short Aussie and Kiwi into last
night. The RBA surprised them hawkishly. The fact that the world
is not going to end, even if China slows down according to the
RBA has taken somewhat the boot off of the neck of risk," said
Lane Newman, director of foreign exchange at ING Capital Markets
in New York.
    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. 
    Against the U.S. dollar the Aussie was up 1.84 percent at  
US$0.8908. The New Zealand dollar accelerated its rise against
the greenback in early New York trade, to gain 1.14 percent on
the day, holding at US$0.8172. 
    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
pull back.
    The euro dropped below $1.35 against the dollar, revisiting
Monday's 2 month low of $1.3475.
    "Part of the reason why the euro is not really participating
in the moves today where the dollar is weaker, has to do with
this fear the ECB (European Central Bank) is going to ease
policy again on Thursday," said Jens Nordvig, head of G10 FX
strategy at Nomura Securities in New York.
    Ahead of the ECB's meeting, the euro traded down 0.18
percent to $1.3494.
    "I think there are reasons why they should do it but I am
not convinced that they will," Nordvig said.
    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.
    A stronger start for U.S. equities that appeared to break
the downward spiral of global markets for the past several days
is helping bolster the greenback as safe-haven risk ebbs ever so
    The U.S. dollar was up 0.44 percent at 101.42 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 mixed report on U.S. factory orders, where new orders fell
in December but rose for a third straight month when the
volatile transportation sector was excluded, tempered Monday's
poor reading on U.S. manufacturing. 
    The euro gained nearly 0.4 percent against the Japanese
currency at 137.07 yen, having earlier touched a better-than two
month low of 136.20.
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