Reuters: US Dollar Report: FOREX-Aussie dollar drops after China GDP, dollar loses out against yen

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FOREX-Aussie dollar drops after China GDP, dollar loses out against yen Apr 15th 2013, 06:19 Mon Apr 15, 2013 2:19am EDT * Disappointing Chinese growth leaves Kiwi, Aussie weak * Warnings from U.S. to have limited effect on yen - analyst * Hard to price in North Korean threat - analyst By Sophie Knight TOKYO, April 15 (Reuters) - Commodity-linked currencies were pummelled on Monday after data showed Chinese growth unexpectedly faltered in the first quarter, while the yen firmed after the United States said it would watch Japan's policies to ensure it was not manipulating its currency. The Aussie slipped 0.6 percent to $1.0439 after the annual rate of growth in China, Australia's biggest export market, stumbled to 7.7 percent in the first three months of the year, from 7.9 percent in the previous quarter. That took the Australian dollar further away from a three-month high of $1.0583 marked on Thursday, and dragged the Kiwi dollar well below its 20-month high of $0.8676 struck on the same day. The Kiwi slumped 1.0 percent to $0.8499, stopping short of support at $0.8480, the 38.2 percent Fibonacci retracement of its March to April rally, above another level of support at $0.8449. A trader who declined to be named said that a slump across commodity markets on the back of the Chinese data, which included a disappointing fall in industrial output, had stirred interest in the safe-haven yen. The dollar pared its earlier gains against the Japanese currency, sagging 0.5 percent to 97.91 yen after falling as far as 97.55, a one-week low that was well shy of a four-year peak of 99.95 struck on trading platform EBS on Thursday. "Although the Chinese data was a factor, there is more impact today from the shrinking spread between U.S. and Japanese bond yields," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. Japanese 10-year bond yields have seen volatile trade since the Bank of Japan announced a radical monetary policy overhaul that will pump about $1.4 trillion into the economy in less than two years, including purchases of longer-dated bonds. "For dollar-yen to gain again we need both the JGB market to stabilise and also signs that the U.S. economy really is robust... as expectations of the Fed winding down QE retreat, the reasons for buying the dollar are also decreasing," Murata added. Rising Japanese bond yields added pressure on the dollar's upside against the yen after a U.S. Treasury Department report released on Friday said it would press Japan to adhere to the commitment it made in February as a member of the Group of Seven and Group of 20 nations to let the market determine exchange rates. However, analysts said the impact of the report would be limited. "It wasn't a direct criticism of Japanese policies themselves, it was just a reiteration of what we'd had before from the G7 and G20 statements: you have to use domestic instruments for domestic goals," said Bill Diviney, currency strategist at Barclays in Tokyo. "I think the (yen buying) is just a kneejerk reaction to the headlines and I don't think the impact will last to be honest. At the same time we also had some quite weak U.S. data so sentiment was not very positive for dollar-yen." Strategists and market participants say the pace of the dollar's upward progress against the yen will largely be determined by whether the BOJ's massive asset-buying prompts Japanese investors to increase their overseas investments, and the extent to which those investments will be unhedged. Currency speculators decreased their bets in favour of the dollar in the latest week, according to data from the Commodity Futures Trading Commission released on Friday. One potentially dollar-supportive factor is the escalation of tension on the Korean peninsula, and any negative developments on that front could prompt investors to buy back the U.S. currency. North Korea celebrated the 101st anniversary of its founder's birth on Monday with no signs of tension easing on the peninsula after it rejected talks with South Korea aimed at normalising ties. North Korea has threatened for weeks to attack the United States, South Korea and Japan since the United Nations imposed new sanctions on the rogue state in response to its latest nuclear arms test in February, fuelling speculation it might launch another missile. While the Korean won was off 0.7 percent at 1120.30 against the U.S. dollar on Monday, market participants said few investors were pricing in a conflict. "There's not much people can do to prepare for an attack except wait to see the market reaction if it does do anything. There's a chance there might be no reaction, just like last year when it launched a missile that fell into the sea," said Junya Tanase, executive director of forex at JP Morgan. Link this Share this Digg this Email Reprints

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