Forex - AUD retains gains on steady rates, yen weaker after Tankan

Investing.com - The Australian dollar retained early gains on Tuesday after the central bank board kept the cash rate at a record low 2.5% as expected, while the yen held slightly weaker after first quarter Tankan data.

"In the board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates," Reserve Bank of Australia Governor Glenn Stevens said in a statement.

AUD/USD traded at 0.9274, up 0.11%, while USD/JPY traded at 103.26, up 0.03%.

Also in Australia, AI Group announced its March PMI at 47.9. easing from February's figure of 48.6.

The Bank of Japan's first quarter Tankan business survey that showed sentiment among major manufacturers came in largely as expected at a gain of 17 in March, up from an increase of 16 in December, posting the fifth straight quarterly rise, while business investment plans by all firms for fiscal 2014 are projected to fall 4.2% from fiscal 2013, when capex plans are estimated to have risen 5.2%.

In China the CFLP manufacturing PMI came in as expected at 50.3, while the final manufacturing PMI fell to 48.0, compared to an expectation of 48.1.

Overnight, the dollar edged lower against most major currencies after Federal Reserve Chairwoman Janet Yellen said the U.S. economy still requires monetary support due to a sagging labor market, while soft factory data out of the Chicago area weakened the greenback as well.

In her first major speech as Fed Chair, Yellen told the National Interagency Community Reinvestment Conference in Chicago, Illinois, that the U.S. economy still needs monetary support to ensure more sustained recovery.

"I believe it is appropriate for the Federal Reserve to continue to provide substantial help to the labor market, without adding to the risks of inflation, is because of the evidence I see that there remains considerable slack in the economy and the labor market," Yellen said in prepared remarks of her speech.

The Fed is currently purchasing $55 billion in bonds a month to spur recovery, a monetary policy tool known as quantitative easing that suppresses interest rates to prop up the economy, weakening the dollar as a side effect.

Yellen's words sent investors reevaluating the pace at which the U.S. central bank will taper its bond-buying program let alone begin hiking benchmark interest rates.

"I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed," Yellen said

Elsewhere, data revealed that manufacturing activity in the Chicago region expanded at a slower rate than forecast in March, as new orders fell.

The Chicago purchasing managers’ index fell 55.9 from 59.8 in February. Analysts had expected the index to tick down to 59.0.

Meanwhile in Europe, the euro zone's consumer price index slowed to 0.5% this month from 0.7% in February, undershooting expectations for a reading of 0.6%. The European Central Bank targets an inflation rate of just under 2%, and March's figure was the lowest since November of 2009.

The report showed that core inflation rose 0.8% in March, in line with forecasts, but down from 1.0% in February.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.02% at 80.28.

On Tuesday in the U.S., the Institute of Supply Management is to publish a report on U.S. manufacturing growth.