FOREX-Aussie slips on China’s rate hike in thin market

* Rise in Shanghai shares helps Aussie cut losses

* Trade thin due to holidays

* Yen near 3-week high in erratic trade

By Hideyuki Sano

TOKYO, Dec 27 (BestGrowthStock) – The Australian dollar fell on
Monday after China’s central bank raised rates at the weekend,
and some analysts say chances of more tightening by China could
prompt investors to sell the Aussie after the year-end holidays.

While the market had been expecting more tightening by
Beijing the timing was a surprise, as there had been doubts
whether it would raise rates before the end of the year.
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Saturday’s rise in interest rates by China’s central bank is
the second in just over two months, underscoring its desire to
dampen domestic demand and get price pressures under control.
Australia has benefited from strong Chinese demand for iron ore
and other commodities.

The news knocked the Australian dollar down 0.3 percent
(AUD=D4: ) in thin, erratic trade, with many of the region’s
financial centres on holiday, including Sydney and Hong Kong.

“China looks set to tighten its policy further in the next
year, which will have a negative impact on the Aussie given
Australia’s strong economic ties with China. When many investors
come back from holiday next week they may start the year by
selling the Aussie,” said Yuki Sakasai, a forex strategist at
Barclays Capital.

The Australian dollar fell to around $1.0025 from around
$1.0053 late on Friday and a six-week high of $1.0067 hit the
day before. But rise in Shanghai shares helped pare losses by
the Aussie, which still boasts a gain of more than 11 percent so
far this year.

While Australia’s relatively sound fiscal position, its
strong growth and higher yields are likely to lure investors,
the Aussie may come under pressure particularly against other
commodity currencies such as the Canadian dollar, Sakasai said.

But other traders see any dip in the Aussie only as a good
bargain-hunting opportunity, as has been the case since early
2009.

“I guess the market is growing immune to China’s credit
tightening. Today the Aussie fell just because there aren’t many
players around,” said a trader at a Japanese brokerage house.

Thin trading conditions are expected to persist for the rest
of the week due to various holidays in many countries. London is
closed on Monday and Tuesday while Tokyo will be shut on Friday.

The euro fell (Read more about the trembling euro. ) 0.2 percent to $1.3093 (EUR=: ) after traders
successfully gunned for stop-loss orders around $1.31.

While the euro looks vulnerable due to worries over some
euro zone countries’ problems with debt financing, the absence
of many market players this week may help the currency hold
above last week’s three-week low of $1.3055, traders said.

The euro has been supported at its 200-day moving average,
which stood at $1.3093 on Monday.

The dollar was little changed against the yen at 82.93 yen
(JPY=: ), though it had hit a three-week low of 82.76 before Tokyo
trade started on Monday, in a reaction to China’s rate hike.

Although stuck in a range of 82.50 to 84.50 yen, the dollar
has been ticking down in the past couple of weeks as holders of
long positions have given up hopes of pushing it beyond 85 yen.

Offers by Japanese exporters kept the dollar in check and
some traders see their offers possibly weighing on the U.S.
currency this week.

“A sharp rise in U.S. bond yields earlier this month has
prompted many traders to bet on a rise in the dollar. But as the
dollar was unable to extend gains, traders have been cutting
long positions,” said Katsunori Kitakura, chief dealer at Chuo
Mitsui Trust Bank.

The dollar/yen rate has had a high correlation with U.S.
bond yields, particularly that on two-year notes, but the
relationship has weakened this month.

Last week it broke down as the two-year U.S. yield rose more
than 5 basis points while the dollar fell 1 yen.

But many traders attribute that to illiquid year-end market
conditions and expect the correlation to return when market
players are back from holiday.

In that regard, an auction of $35 billion in two-year U.S.
Treasuries later in the day will be closely watched for clues on
where U.S. bond yields may be headed after a volatile month in
the bond market.

Support for the dollar is seen at around 82.60 yen, its
55-day moving average, and then around 82.40 yen, the bottom of
a daily ichimoku cloud as well as the tenkan line on the weekly
ichimoku chart.

But the bottom of the cloud is expected to gradually rise
later in the week, making it thinner towards early January and
pointing to a higher risk of the dollar falling below the cloud.
That would be considered a major bear signal.
(Editing by Michael Watson)

FOREX-Aussie slips on China’s rate hike in thin market