Yen's respite proves short-lived with Fed in focus
Picture illustration of Yuan and Yen banknotes (Issei Kato Reuters, / May 29, 2012)
TOKYO/SYDNEY (Reuters) - The yen retreated toward recent lows against the dollar and the euro in Asia on Thursday, failing to capitalize on a small bounce as markets positioned for a possible scaling back of the Federal Reserve's stimulus as early as next week.
News that Congress has reached a bipartisan budget deal that would end three years of impasse and fiscal instability was seen clearing a potential hurdle for the Fed to taper its massive bond-buying program.
Investors' appetite for risk waned on the growing possibility of an earlier-than-expected stimulus reduction by the Fed at its final policy meeting for 2013 next Tuesday and Wednesday.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1 percent, its sharpest one-day fall in three weeks.
The selloff in risk assets initially prompted a squeeze on short-yen positions which saw the euro slip as low as 141.20 yen, pulling away from a five-year peak of 142.19 set on Tuesday. That move proved short-lived as the euro bounced back to 141.42 yen, up 0.2 percent on the day.
"The cross yen rates continue to march on higher," said Bart Wakabayashi, head of forex at State Street Global Markets in Tokyo, who said the impact on currencies of the U.S. budget impasse resolution was muted.
The dollar fetched 102.58 yen, still below a seven-month high of 103.40 yen touched on Tuesday but up about 0.2 on the day and off a session low of 102.39 yen. The dollar's next test is seen at 103.50 yen, with talk of an options-related barrier there.
"That was a pretty healthy move down, but we're back where we are, so that level will be challenged again," Wakabayashi said.
The Australian dollar, often sold in times of heightened risk aversion, fell about 0.2 percent against the greenback. It last stood at $0.9023, despite data showing Australian employment increased by 21,000 in November to handily beat expectations as more full- and part-time positions were created. .
In contrast, the Reserve Bank of New Zealand maintained its hawkish stance on Thursday, signaling that interest rates could start rising in the first half of next year.
That helped push the kiwi to $0.8275, up about 0.2 percent and well off its overnight low of $0.8201.
The dollar was steady at 79.883 but struggled to go higher as the euro edged up against the U.S. unit. The common currency has climbed nearly 4 percent since November 11 and was up about 0.1 percent at $1.3793, within easy reach of its 2013 peak of $1.3833 set back in October.
The latest run higher was fuelled by growing expectations the European Central Bank will not be providing fresh stimulus any time soon, although some analysts are starting to see little value in the euro at current levels.
"We entered a short EUR/USD recommendation Wednesday, targeting a move down to 1.32 with our stop set at 1.3975," analysts at BNP Paribas wrote in a note to clients.
"We think rate differentials are likely to move against the euro once again in the near-term," they said, adding the euro/dollar was trading rich according to their analysis.
There was little reaction to media reports that Stanley Fischer, who led the Bank of Israel for eight years until he stepped down in June, could become the Fed's next vice chair.
Sebastien Galy, strategist at Societe Generale, said Fischer was a mentor of the current Fed Chairman, Ben Bernanke, and "is very rationally a dove, when needed."
Such a view, if it becomes widespread, could potentially weigh on the greenback.
(Editing by Shri Navaratnam)