Yen vulnerable after fall, Aussie resilient

By Ian Chua

SYDNEY (Reuters) – The yen wallowed at 10-month lows versus the euro and near a three-week trough on the dollar early in Asia on Wednesday, having suffered broad losses after several major chart support levels were breached.

Traders said further declines for the yen were likely as hawkish comments from several Federal Reserve officials have made the Japanese currency more attractive than the greenback as a funding currency for buying higher-yielding assets.

“Japanese retail investors look to be getting back in again, having lost positions after the earthquake. Global equities are stronger and it’s risk on again,” a trader at a U.S. investment bank said.

The dollar rose as high as 82.58 yen, having breached the 50-day moving average at 82.10. It is now above the March 18 peaks, when Japanese authorities and other G7 central banks worked in concert to stop runaway yen gains.

“We view this as a one, or at most two-week move to 85 at best,” said Kit Juckes, strategist at Societe Generale, adding month-end flows and sensitivity may have contributed to the rise in dollar/yen.

The move came as the two-year U.S. Treasury yield climbed to near six-week highs around 0.83 percent after St. Louis Federal Reserve chief James Bullard urged the U.S. central bank to begin reversing its campaign of monetary easing.

Bullard, who does not have a vote on Fed policy this year, said the Fed could trim its $600 billion bond-buying program by $100 billion.

“Non-voting, regional Fed presidents might rarely have been so important … so long as they say what the market wants to hear,” David Watt, strategist at RBC wrote in a client note.

The yen hit a record high after a massive earthquake and tsunami in Japan fueled speculation the disaster would force Japanese investors to liquidate overseas assets and bring money home. But with renewed yen weakness, the risk of further intervention has receded.

The euro climbed to 116.52 after breaking through major resistance around 115.50/60, a level that has capped the pair since May 2010. It last traded at 116.27.

The common currency has been supported by expectations of an imminent interest rate hike by the European Central Bank, which is worried about rising inflation.

That view was supported by ECB Governing Council member Jozef Makuch, who said on Tuesday the ECB was “highly” likely to raise its main interest rate from the current record low level of 1.0 percent next month.

Against the dollar, the euro held near $1.4100, finding the going tough after a crack at levels above $1.42 last week was met with selling interest.

This left the dollar index (.DXY: Quote, Profile, Research), which tracks its performance against a basket of major currency, little changed at 76.150, but still well off last week’s 15-month lows of 75.340.

The Aussie held its ground against the dollar at $1.0287, near a 29-year peak just above $1.03 set on Monday.

It rallied toward 85 yen, powering well clear of the 200-week moving average at 84.16. Traders said a sustained break could pave the way for a move toward the 2010 peaks around 88.00 yen.

“I don’t think you can fight the trend by being short at the moment. You just wait for a dip and try to buy it,” a trader said.

Yen vulnerable after fall, Aussie resilient