Written by Samuel Indyk and Kevin Buckland
LONDON (Reuters) – The U.S. dollar was broadly flat on Tuesday while the yen pared earlier losses as Japanese officials issued fresh warnings after two rounds of suspected interference in dollar selling last week.
The Australian dollar fell from its highest level in nearly two months against its US counterpart after the Reserve Bank of Australia refrained from stepping up hawkish signals, as some traders had expected.
The index – which measures the currency against six major currencies, including the yen, British pound and euro – was up less than 0.1% at 105.23, after falling to 104.52 on Friday.
The index rose about 4% this year but fell about 1% last week after the Federal Reserve ruled out further raising interest rates and there were signs of weakness in the US labor market.
“Overall, we remain more structurally positive on the US macroeconomy as a whole and we think this is what will support the dollar next year,” said Kerstin Kondby Nielsen, foreign exchange analyst at Danske Bank.
The US dollar rose in recent transactions by only 0.1% to 154.06 yen, after rising earlier to 154.60.
It fell to 151.86 yen on Friday for the first time since April 10, as weak US jobs data fueled losses after Bank of Japan data indicated official intervention could have amounted to about 9 trillion yen ($58 billion).
Japan's Finance Ministry declined to comment on whether it was behind the dollar sell-off, but chief currency diplomat Masato Kanda reiterated on Tuesday that the government “will continue to take the same resolute approach” to the yen's uncontrolled movements.
Remove ads
.
He also acknowledged that a regulated market would not require government intervention.
“Kanda pointed out that there is no need to intervene when markets are working properly, which means they have not been working properly recently,” said Colin Asher, chief economist at Mizuho.
The carry trade remains attractive, as the Fed's rate cut is likely to take some time, and the Bank of Japan is taking a dovish approach to tightening monetary policy after its first rate hike since 2007 in March, leaving a large gap of 360 basis points between… Extreme interest rates. Japanese long-term yields and their US counterparts decline.
Meanwhile, DBS analysts estimate that even after last week's bounce, the yen remains the most undervalued currency in the G10, while the dollar remains “significantly overvalued.”
In a note to clients, they wrote, “We expect Japan to continue to rely on excessive JPY weakness.”
It fell after the Reserve Bank of Australia's interest rate decision, in which interest rates were kept unchanged, but the central bank stopped short of reinstating the tightening bias that some had expected as inflation failed to cool as much as expected.
In her press conference after the central bank's widely expected decision, Governor Michelle Bullock said the board believes monetary policy is at the right level to bring inflation back on target. Bullock added that the RBA hopes the economy will not have to face additional interest rate increases.
The Australian dollar fell in recent transactions by 0.5 percent to 0.6593 US dollars, retreating from the highest level recorded on Friday at 0.6650 US dollars, the level it previously recorded on March 8.
Remove ads
.
“It was like buying the rumours, selling the truth,” said James Knifton, senior FX trader at Convera.
“They (the Reserve Bank of Australia) remain alert to upside risks, but the hawkish bias that markets expected has not occurred.”
The euro fell 0.1 percent to $1.0758, and the pound sterling fell 0.2 percent to $1.2534 before the Bank of England's policy announcement on Thursday.
($1 = 154.2000 yen)
