FOREX-Dollar struggles, calmer markets stoke risk demand

* Dollar index near 15-mth low, eyes support at 75

* Euro resilient despite S&P’s downgrade of Portugal

* Australian dollar dips, but near 29-year high vs dollar

* Dollar/yen steady, talk of offers above Y81.50

By Naomi Tajitsu and Masayuki Kitano

HONG KONG/SINGAPORE, March 25 (Reuters) – The dollar hovered
near a 15-month low against a basket of currencies and was in
sight of a 29-year trough against the Australian dollar as a
bounce in equities suggested that risk appetite was on the mend.

The euro dipped briefly after Standard & Poor’s downgraded
Portugal’s credit ratings by two notches to BBB and warned it
could cut it again by one notch as early as next week.
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But the single currency’s losses were limited, and the
broader picture was one of dollar weakness on the back of a
recovery in global equities and improving risk sentiment.

“The market is treating many of these downgrades as
rear-guard action which is already well discounted and the
dollar is under pressure broadly,” said Todd Elmer, currency
strategist at Citi in Singapore.

“This will continue to support the euro even if we do see
some marginal negative news on the sovereign debt crisis.”

The euro (EUR=: Quote, Profile, Research) traded around $1.4180, up slightly from late
U.S. trade. It stumbled as low as $1.4150 after the downgrade,
but bids around that level and $1.4140 clipped further losses.

The single currency has rebounded from a slide to around
$1.4050 on Thursday. Traders suspected Asian sovereign names had
been buying the euro around that level.

This put back into view a 4 1/2-month high of $1.4249 hit
earlier in the week, and analysts including Elmer at Citi
expected the euro to soon retest that level, and subsequently
$1.4283, a peak hit in early November.

The euro has shown resilience despite worries over the
fiscal woes of highly-indebted euro zone countries such as
Portugal, supported in part by market expectations that the
European Central Bank would raise interest rates as early as
April, boosting its yield advantage over the dollar.

In another sign of the dollar’s broad weakness, the
Australian dollar hovered near its Dec. 31 peak around $1.0257
— a level not seen since 1982. The Aussie dollar last stood at
$1.0200, down a touch from Thursday.

“With U.S. equities rising on solid earnings it looks as if
risk appetite improving,” said a trader for a major Japanese
bank in Tokyo.

JAPAN SEEN DEFENDING 80 YEN

Markets have settled after Japanese equities plunged last
week on worries over the economic toll from Japan’s earthquake
and tsunami, while fears over a quake-crippled nuclear power
plant had spurred a bout of risk aversion.

Joint intervention by the Group of Seven industrialised
nations to sell the yen to contain its surge versus the dollar
and other currencies has stabilised the FX market.

The dollar held steady against the yen at 80.99 yen (JPY=: Quote, Profile, Research),
staying some ways above a record low of 76.25 yen hit last week.

Investors are bracing for the possibility of more
yen-selling intervention by Japan, while dollar selling interest
by Japanese exporters ahead of the financial year-end is likely
to temper gains in the U.S. currency.

Traders in Hong Kong cited slight dollar demand at 80.90 and
81.00 yen, while adding that selling demand was limited in Asian
trade. A trader for a major Japanese bank in Tokyo said there
were dollar offers at levels above 81.50 yen.

Market participants see Japan defending the dollar around 80
yen through the fiscal year-end, while analysts say it will step
in to curb yen strength around that level beyond March if any
yen appreciation is accompanied by erratic market movements.

Japan has said the aim of any intervention is to quell
market volatility. Last week’s action achieved this, as the
dollar has been glued to the 81 yen region throughout this week
while implied volatility has dropped sharply (JPVOLS: Quote, Profile, Research).

“The fact that the market has calmed gives them less need to
intervene, but there’s a good chance that if the dollar went
below 80 yen, market volatility would pick up quite
significantly, so they would be justified in entering the
market,” said David Forrester, currency strategist at Barclays
Capital in Singapore.

He added that even an orderly break below 80 yen could
prompt Tokyo authorities could step as a preemptive move to
avoid any jump in volatility.

Other analysts argued that last-minute yen buying by
corporates has ended while significant repatriation flows by big
Japanese investors have been more or less nonexistant in the
past week, suggesting few immediate reasons to buy the yen.

As a result, Koji Fukaya, currency strategist at Credit
Suisse in Tokyo, said further yen strength would be unwarranted,
likely prompting Japan and other countries to enter the market.

“Regardless of when it happens, I think a break under 80 yen
will see coordinated intervention,” said Koji Fukaya, currency
strategist at Credit Suisse in Tokyo.

“And the threat is of coordinated action, rather than Japan
acting on its own, so I don’t see a break under that level.”

The dollar index, which measures the dollar’s value against
a currency basket, was flat at 75.711 (.DXY: Quote, Profile, Research), but hovered near
75.340 hit earlier this week, its lowest since December 2009.

The index looks vulnerable on charts after its recent drop
below trendline support connecting lows hit in July 2008 and
November 2010. One possible target is its 2009 low of 74.170.

A trader at another Japanese bank in Tokyo said the 75 level
is now seen as major support for the dollar index. A breach of
that level could open way for further fall in dollar, he added.
(Additional reporting by Hideyuki Sano in Tokyo; Editing by Kim
Coghill)

FOREX-Dollar struggles, calmer markets stoke risk demand