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FOREX-Dollar vulnerable, hovering near 15-yr low vs yen

Published 09/06/2010, 02:23 AM
Updated 09/06/2010, 02:24 AM

* Risk currencies firm after positive U.S. payrolls

* Dollar looks vulnerable against yen, near 15-yr low

* Kiwi inches up after earthquake

By Hideyuki Sano

TOKYO, Sept 6 (Reuters) - The dollar dipped on Monday and looked poised to test a 15-year low against the yen after failing to retain gains made after U.S. jobs data, although caution about Japanese intervention deterred further yen buying.

Less-dire-than-expected U.S. payrolls data last week eased market anxiety over chances of a global slowdown and boosted demand for the euro and growth-leveraged currencies.

"When risk appetite comes back, both the dollar and the yen are weak. But because the dollar has low interest rates despite the U.S. twin deficits, its weakness tends to stand out even against the yen," said Tohru Sasaki, chief FX strategist at J.P. Morgan Chase Bank.

"This shows the dollar/yen is unlikely to rise whether global markets are leaning towards risk taking or not," he said.

Dollar/yen inched down 0.1 percent to 84.35 yen, not far from a 15-year low of 83.58 marked late last month. It rose briefly to 85.23 after the payroll data, but quickly erased the gains.

U.S. non-farm payrolls fell 54,000, a much smaller drop than the predicted 100,000. Private employment, considered a better gauge of labour market health, increased 67,000.

In currency markets, rising risk appetite has tended to help the euro and higher-yielding currencies in recent months, as investors increasingly see the greenback as a funding currency for investments on expectations of a prolonged period of near zero rates in the U.S.

The euro was little changed at $1.2893, having risen to $1.2905 earlier in the day, its highest in nearly three weeks.

Market participants said they believe central banks in Asia, excluding Japan, are converting dollars into euros after they intervene in the market to rein in gains in their own currencies against the greenback. This is lending extra help to the euro, they said.

Resistance is seen around $1.2920-35, a level where the currency was capped in mid-August.

The Australian dollar fetched $0.9168, down about 0.1 percent from late U.S. levels last week but still near a four-week high of $0.9176 hit after the U.S. payrolls figures.

The Aussie faces resistance around $0.9180, its trendline from highs in April and August, and the $0.9220-25 area, its peak in early August.

The dollar index, a gauge of the greenback's performance against a basket of six major currencies, fell 0.1 percent on the day to 81.999.

Support is seen at 81.91, a low marked on Aug. 18 and after that 81.82 -- the 50 percent Fibonacci retracement of the index's rise from 80.085 to a high of 83.559, both also marked in August.

The yen has been bought in the past few months as investors tend to favour currencies from countries with a current account surplus when they want to avoid risky assets.

Japan's positive balance of payments figures mean dollar selling by Japanese exporters constantly outweighs dollar buying by Japanese importers, capping the greenback versus the yen.

Many dealers suspect Japanese exporters still have dollars to offload ahead of their half-year finish at the end of September. Their offers are expected to be lined up above 85.00 and onwards.

Dollar/yen has had a very high correlation with U.S. yield levels in recent months. The lower U.S. yields are, the cheaper the dollar is against the yen, as lower yields tend to discourage investment in the dollar from Japan.

On Friday, however, the dollar did not make much headway against the yen even as the payrolls data pushed U.S. yields sharply higher.

Partly offseting the effect of rises in U.S. yields are recent spikes in Japanese bond yields. Ten-year Japanese government bond yields have gained more than 25 basis points in less than two weeks, a climb that almost matches the rise in 10-year U.S. yields during the same period.

Currency speculators trimmed their long positions on the yen last week but they still have big yen long positions, data from the U.S. Commodity Futures Trading Commission showed on Friday.

Their net long positions were cut to 49,904 from 51,069 contracts the week before.

Some analysts say the dollar could eventually gain, however, particularly if Japanese government bond yields stop rising.

"The U.S. dollar appears to be rebounding, which could make for a rise in dollar/yen to 85-86 yen," said Masafumi Yamamoto, chief FX strategist at Barclays.

The New Zealand dollar erased slim losses earlier to stand at $0.7218, up 0.2 percent on the day, after a magnitude 7.1 earthquake struck the country's second-largest city, Christchurch, causing widespread damage to infrastructure. (Additional contribution from Reuters analyst Rick Lloyd in Singapore and additional reporting by Rika Otsuka; Editing by Edwina Gibbs)

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