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FOREX-Yen bolstered as risk currencies take a drubbing
March 22, 2012 / 11:15 PM / 6 years ago

FOREX-Yen bolstered as risk currencies take a drubbing

* Worries about China, Europe weigh on risk sentiment

* Growth-linked currencies like the Aussie hit hard

* Euro resilient, but more downside vs USD seen

By Ian Chua

SYDNEY, March 23 (Reuters) - The safe-haven yen held on to overnight gains in Asia on Friday, having risen across the board as investors gave risk currencies like the Australian dollar a wide berth on worries about the health of the global economy.

Surveys on Thursday showed manufacturing shrank for a fifth month in China, while factory activity in Germany and France -- Europe’s two biggest economies -- suffered big falls.

This prompted investors to dump growth-linked currencies and take shelter in the yen, which rose against the dollar, euro, Aussie and kiwi. The dollar fell more than 1 percent on Thursday to a 1-1/2 week low of 82.31 yen, before recovering a bit of ground to last stand at 82.60.

“Fears of a Chinese hard landing are on the rise; overdone we think,” said Vincent Chaigneau, strategist at Societe Generale.

“Concerns over Europe are burgeoning again, rightly so given the weak economy and the toxic focus on enlarging the firewall,” he added.

The euro, however, was surprisingly resilient against the greenback, bouncing off a low of $1.3133 to $1.3199. Still, BNP Paribas analysts expect the single currency could fall further.

“We see scope for EURUSD to trade lower in the coming weeks, based on the risk that Treasury yields will overshoot to the upside relative to what we regard as realistic Fed policy expectations,” they wrote in a client note.

“We also see the potential for the reemergence of some euro zone stress as we head into April and as the French and Greek elections draw near. We are targeting 1.28 in the coming weeks.”

The recent flow of encouraging U.S. data has driven U.S. Treasury yields sharply higher, making the dollar less attractive as a funding currency for carry trades.

Traders said yields are prone to pullbacks like the one seen on Thursday, but should rise further if the U.S. recovery strengthened, providing support for the greenback in the months to come.

Among the biggest losers, the Australian dollar fell as far as $1.0336, lows not seen since mid-January. It last stood at $1.0393, on track to end the week down 1.9 percent.

After a rush of manufacturing surveys on Thursday, Friday is shaping up to be relatively quiet in terms of market-moving data in Asia. In Europe, Italian retail sales and French business climate are due, followed by U.S. new home sales.

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