FOREX-Dollar falls vs yen despite higher U.S. yields

* Dollar dips vs yen despite backup in U.S. yields

* Swiss franc near record high; commodity currencies firm

* Euro slightly higher vs dollar, holds above 200-day m.a.

(Updates prices)

By Steven C. Johnson

NEW YORK, Dec 29 (BestGrowthStock) – The dollar fell against the
yen on Wednesday as Japanese exporters brought earnings back
home, outweighing higher U.S. bond yields, which rose following
the prior session’s weak Treasury auction.

Commodity gains boosted the Australian and New Zealand
dollars, while the euro rose against the U.S. dollar after
holding above its 200-day moving average.

Worries that the euro-zone debt crisis could spread to
Spain and Portugal has most analysts bracing for more euro
weakness in early 2011, but the currency’s stubborn refusal to
break below the 200-day moving average, now at $1.3084, has
frustrated bearish investors.

The euro was last at $1.3170 (EUR=: ), up 0.4 percent, while
the dollar was down 0.6 percent at 81.98 yen (JPY=: ), near
Tuesday’s 6-1/2-week low just above 81.80 yen.

Even with London’s traders returning from a two-day bank
holiday, volume was low, leaving the market susceptible to more
exaggerated price fluctuations.

Analysts said year-end positioning was driving prices as
well. That’s been the case with the yen and Swiss franc, both
of which have risen over recent days on repatriation flows.

But both currencies were attractive for other reasons as
well, traders said.

“The Swiss franc is well supported by fundamentals, risk
aversion and by people diversifying out of euros,” said Niels
Christensen, currency strategist at Nordea in Copenhagen.

The euro was at 1.2490 francs (EURCHF=EBS: ), about half a
cent from a record low, while the dollar fell 0.2 percent to
0.9506 francs (CHF=EBS: ), near Tuesday’s 0.9435 record low.

THE DOLLAR AND BOND YIELDS

Yen gains were tied partly to Japanese exporters
repatriating earnings before the year ends, a common practice
that tends to support the yen.

Over the past week, that has caused a splinter in the tight
relationship between the dollar-yen rate and U.S. bond yields
— the dollar usually gains as bond yields rise.

But some analysts said there may be more to it, saying
concern about U.S. finances could hurt the dollar in 2011.

A spike higher following a weak five-year note auction on
Tuesday did help the dollar rebound from a 6-1/2-week low
against the Japanese currency.

The benchmark 10-year Treasury note gained 16 basis points
on Tuesday to yield just shy of 3.50 percent, and had eased
only slightly to 3.48 percent early on Wednesday. [US/]

But BNY Mellon analyst Neil Mellor said the relationship
between the exchange rate and yields may weaken in 2011. Should
euro-zone concerns ease and bond investor fears grow about the
impact of a recent tax plan on the U.S. fiscal deficit, “it
cannot be assumed that a further backing up in bond yields will
continue to be supportive of the dollar vis-a-vis the yen.”

On nine of the past 10 days the correlation between U.S.
yields and the dollar/yen rate has splintered. Mellor said.

“Whilst drawing inferences from the price action at this
time of year is generally best avoided, the recent price action
may well be a taste of things to come in 2011,” he said.

The U.S. Treasury will sell $29 billion in seven-year notes
on Wednesday.

The Australian dollar (AUD=D4: ) rose 0.4 percent to $1.0132,
near a 28-year peak hit in November. Rising commodity prices —
London Metal Exchange copper hit a record high [MET/L] —
boosted the Aussie and helped investors shrug off fear a recent
Chinese interest rate hike would slow the economy.
(Additional reporting by Jessica Mortimer in London; Editing
by Chizu Nomiyama)

FOREX-Dollar falls vs yen despite higher U.S. yields