Reuters: US Dollar Report: FOREX-Yen pares losses, Aussie off highs as China data support fades

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FOREX-Yen pares losses, Aussie off highs as China data support fades Apr 2nd 2012, 10:26 Mon Apr 2, 2012 6:26am EDT * Investors cautious over global economy, riskier assets * Yen pares early losses, Aussie dollar slips from overnight highs * Euro zone manufacturing contracts at faster pace in March By Neal Armstrong LONDON, April 2 (Reuters) - The yen pared losses on Monday and riskier currencies like the Australian dollar came off highs seen in Asia as support from surprisingly strong Chinese factory data faded and investors were cautious on the outlook for the global economy. The euro barely reacted to a purchasing managers' index showing manufacturing in the euro zone shrank in March, and at a faster rate, as fx volumes fell ahead of the Easter holidays. The high-yielding Australian and New Zealand dollars, which are positively correlated with risk-seeking behaviour, pared gains after a report on Sunday showing activity at big Chinese factories hit an 11-month high in March failed to convince market players to take fresh positions in riskier assets. "It seems like investors remain cautious with service sector data from China still to come this week and nothing to indicate an imminent policy response from the Chinese to the slowdown in their economy," said Valentin Marinov, head of European G10 fx strategy at Citi. "If anything the latest rebound in manufacturing pushes that policy response further into the future," he added. The low-yielding yen, which tends to fall when risk appetite increases, recouped earlier losses to trade flat for the day versus the dollar at 82.74 yen and near unchanged on the euro at 110.50 yen. "It's a week ahead of the long weekend with thin liquidity, making investors reluctant to express strong views and which limits the scope for meaningful returns ahead of Easter," said Marinov. The higher-yielding Australian dollar was up around 0.4 percent for the day at $1.0390 after rising to $1.0470 in Asian trade. Against the yen, the Aussie climbed to 86.30, pulling well away from last week's trough around 84.60. The Japanese currency was undermined by a weaker-than-expected reading of the "tankan" survey of sentiment at big Japanese manufacturers, which put the spotlight on whether the Bank of Japan will conduct additional monetary easing as early as next week. EURO AT RISK With Japan's fiscal year-end out of the way, there is now less chance of the yen drawing support from seasonal fund repatriation by Japanese companies, market players say. In a sign of bearish market sentiment against the yen, a gauge of market positioning shows that currency speculators had ramped up net short positions in the yen in the week ended March 27 to the highest since July 2007. The euro was steady against the dollar at $1.3351 after the weak euro zone manufacturing data. "There's an increasing risk of a more prolonged recession in Europe and economic fundamentals argue in favour of a further downward adjustment in the euro, but for now the market is short which is preventing fresh selling," said Lee Hardman, currency analyst at BTM-UFJ. The euro was below a one-month high of $1.33857 hit last week while the dollar stayed near a one-month low versus a currency basket hit last week when dovish rhetoric from Federal Reserve Chairman Ben Bernanke weighed broadly on the greenback. Focus in the U.S. moves to ISM manufacturing data to be released at 1400 GMT, which is expected to show continued expansion, in stark contract to the euro zone. Link this Share this Digg this Email Reprints

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