Dollar, yen find reprieve

By Ian Chua

SYDNEY (Reuters) – The yen and U.S. dollar found some reprieve in Asia on Tuesday as demand for red-hot commodity currencies like the Australian dollar waned, but dovish comments from Federal Reserve officials were seen likely to limit the greenback’s upside potential.

Two of the Fed’s most powerful officials, Janet Yellen and William Dudley, said on Monday the U.S. central bank should stick to its super-easy monetary policy, arguing inflation is not a threat and unemployment remains too high.

“With the Fed’s accommodative policy intact for some time, USD weakness is likely to persist. Thus, the small correction seen across the board indicates more profit taking than the start of a trend,” BNP Paribas analysts wrote in a note.

The dollar index (.DXY : Quote, Profile, Research), which tracks the greenback against a basket of major currencies, last traded at 75.044, having found some support after plumbing a 16-month low of 74.838 on Friday.

The euro retreated from Friday’s 15-month high around $1.4485 to $1.4435, but traders say the January high of $1.4582 remains in play. The Australian dollar was at $1.0492, off a 29-year peak of $1.0585 set Friday.

Profit-taking also helped the yen halt its recent slide to 11-month lows versus the euro and a 2- year trough on the Aussie.

“Aftershocks in Japan hampered overall risk sentiment helping JPY to be the top performer overnight, even amid reports that the estimate of the severity of the Fukushima accident could be increased to 7, on par with Chernobyl,” said David Watt, strategist at RBC.

But its downtrend remains firmly in place. The Japanese currency has been on a slippery slope since last month’s joint G7 intervention to curb runaway yen gains.

The Bank of Japan’s ultra-loose monetary stance and prospects of more easing have also made the yen the funding currency of choice in carry trades.

The dollar was at 84.58 yen, off a seven-month peak of 85.54 set on Thursday, while the euro traded at 122.04 yen, down from Monday’s peak of 123.33.

The Australian dollar eased to 88.68 yen, having scaled a high of 90.04, its strongest since September 2008.

Markets are next eyeing inflation data, with Germany, Spain, and the United Kingdom among those releasing reports on Tuesday. U.S. inflation data is due on Thursday and Friday.

In the UK, the annual consumer price inflation rate is forecast to hold steady at the 28-month high of 4.4 percent, more than double the central bank’s target.

Another upside surprise would fuel talk of an imminent rate hike, giving sterling a fillip. The pound was last at $1.6342, having reached a 15-month high of $1.6430 Friday.

(Editing by Wayne Cole)

Dollar, yen find reprieve