July 22, 2014 / 4:45 AM / in 3 years

FOREX-Yen dips on modest reduction in risk aversion, markets still wary

* Yen posts modest losses vs dollar, euro

* Focus on U.S. consumer prices data later in session

* Aussie posts modest gain after RBA Stevens speech (Updates Australian dollar move)

By Shinichi Saoshiro

TOKYO, July 22 (Reuters) - The yen dipped against the dollar and euro on Tuesday on a slight reduction in geopolitically-inspired risk aversion that lifted equities across Asia.

Still, markets were unable to fully shake off geopolitical concerns as tensions in the Ukraine and Gaza remained high, keeping the dollar and euro in a narrow corridor against the Japanese currency

“Geopolitical developments channelled through higher oil prices will remain key theme this week,” said Shinichiro Kadota, chief FX strategist at Barclays Bank in Tokyo.

“Heightened geopolitical risk accompanied by higher oil will help the yen and Swiss franc appreciate while weighing on the Australian and New Zealand dollars. Emerging market currencies from Taiwan, Singapore, Korea, Thailand and India are also vulnerable to higher oil,” he said.

Oil prices have risen as the threat of escalating tension between Russia and the West over the crisis in Ukraine mounted, with U.S. crude surging to a three-week high on Monday.

The euro edged up 0.1 percent to 137.25 yen after crawling back from a five-month trough of 136.71 yen hit late last week when a Malaysian airliner was downed over Ukraine and an Israeli ground offensive in Gaza began.

Against the dollar, the common currency was effectively flat at $1.3525 after recovering from a five-month trough of $1.3491 touched on Friday.

The dollar crept up 0.1 percent to 101.48 yen, having pulled back from a low of 101.09 hit late last week.

“Although caution towards the yen garnering bids remains, the overall trend is dollar-supportive, with the Federal Reserve poised to exit monetary easing eventually,” said Junichi Ishikawa, market strategist at IG securities in Tokyo.

“Dollar/yen could gain further upward momentum if it goes above the 21-day moving average (at around 101.60) as that would trigger rounds of short covering. But it is likely to face resistance at 102.00, where dollar-selling orders by Japanese exporters are said to be lined up,” he said.

Aside from geopolitical developments, participants kept an eye on the U.S. consumer prices data due at 1230 GMT. Focus was on whether the dollar would react if the data proved strong enough to raise expectations for accelerated monetary tightening by the Federal Reserve.

The Labor Department is expected to report that U.S. inflation pulled back to a month-on-month rise of 0.3 percent June, after rising food prices saw the index rise 0.4 percent in May, its biggest increase in more than a year.

The Australian dollar bounced slightly after Reserve Bank of Australia Governor Glenn Stevens largely refrained from pushing a dovish line on policy that some in the market had braced for.

Australia’s top central banker on Tuesday said record low rates were working as intended and he was content with the current state of policy, though further action would be considered if it could “reasonably” be expected to do more.

The Aussie was up 0.1 percent at $0.9386 after briefly rising to $0.9395. (Editing by Shri Navaratnam)

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