April 2, 2012 / 3:46 AM / 6 years ago

Yen firmer, Aussie eyes RBA rate decision

SYDNEY (Reuters) - The yen held firm in Asia on Tuesday as investors cut back on short positions amassed in recent weeks, while dreary euro zone manufacturing and jobs data kept a leash on the euro.

100 Euro notes are spread out next to Japanese 10,000 yen notes at Interbank Inc. money exchange in Tokyo, in this September 9, 2010 picture illustration. REUTERS/Yuriko Nakao

The dollar fell from a session high of 83.31 yen to 82.12, with traders citing sales by leveraged funds and large selling flows in euro/yen.

A fall in U.S. Treasury yields and stop-loss selling triggered by a break below 82.60 yen, were also blamed for the greenback’s slide.

Still, the dollar appeared to be consolidating its February-March rally from 76.21 to 84.19. That rally had seen the dollar overshoot on the topside to be above its fair value of around 81.65 based on U.S. Treasury yield signals, said Societe General’s analyst Sebastien Galy.

“It suggests we may still fade a bit lower towards that level, helped by the upcoming Fed minutes. Eventually though sentiment will turn around, with the NFP as the next potential trigger for a move higher,” he added, referring to Friday’s U.S. non-farm payrolls report.

The euro skidded to 109.41 yen, from Monday’s high at 111.13, a move that confirmed strong resistance above the 111.00 area.

Against the dollar, the euro eased to $1.3325 from Monday’s high of $1.3381. Since the mid- to late-March rally from $1.3000 to $1.3386 fizzled out, the single currency has been drifting in a relatively thin $1.3250/3400 range.

Not helping the euro, data on Monday showed unemployment in the euro zone reached its highest in almost 15 years in February, while manufacturing contracted for an eighth straight month in March.

This was in contrast to stronger factory activity in China and the United States.

Commodity currencies like the Australian dollar also lost ground on the yen, but held onto recent gains versus the dollar.

The Aussie bought $1.0419, having climbed as high as $1.0470 on Monday. On the Japanese currency, it fetched 85.58, down from a high of 86.71.

The Aussie’s fortunes hinge on retail sales data due at 0130 GMT and, more importantly, the Reserve Bank of Australia’s interest rate decision at 0430 GMT.

A recent batch of soft local data had prompted markets to price in a one-in-three chance of a rate cut, although none of the 18 economists polled by Reuters expect a move.

“We expect the RBA to keep rates at current levels for the rest of the year,” BNP Paribas analysts wrote in a client note.

“With euro zone concerns considerably abating, the external environment, which has been one of the RBA’s main concerns, may put the central bank at ease. In addition, the China PMI rebound supports the RBA’s apparently relaxed stance on China.”

Editing by Wayne Cole

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