Dollar slips but underpinned by higher U.S. yields |
By Hideyuki Sano
TOKYO, Oct 28 (Reuters) - A short-covering bounce in the dollar paused on Thursday but traders said a rise in U.S. Treasury yields could prompt more buybacks in the greenback before the Federal Reserve's policy meeting next week.
U.S. bond yields have risen this week partly as euphoria over the Fed's likely asset purchase programme is being replaced by doubts over the size of such a move.
"A model player's buying is pushing up the euro in thin trade. But given that U.S. bond yields have risen, the dollar will go in the same direction in the near term," said a trader at a Japanese brokerage.
The dollar's fate has had a close correlation to U.S. yields and their gap with rates on other currencies, as increases in U.S. yields — other things being equal — tend to help the greenback by making dollar investments more attractive.
With the gap between Japan and U.S. two-year yields near a three-week high and that for 10-year yields near a 2-½ month high, dollar/yen could have further room to rebound, some traders said.
Dollar/yen
The Bank of Japan kept interest rates virtually at zero and held of from new policy initiatives on Thursday, and unveiled details of an asset buying scheme it announced earlier in October.
The BOJ also said it would bring forward its next policy meeting to Nov. 4-5 from Nov. 15-16 to make arrangements to start buying exchange-traded funds and J-REITs at an early date.
The yen showed a limited reaction to the BOJ's decision.
The dollar faces strong resistance at 82 yen, which has blocked its advance several times in recent weeks. Its 21-day moving average was also at 82 yen on Thursday.
Except for a short period after Japan intervened in currency markets on Sept. 15, the dollar has been mostly stuck below the 21-day average line since its decline in June, and a rise above 82 yen could ignite more buybacks in the dollar.
JAPANESE EXPORTERS
But market players also note that Japanese exporters, a growing number of which have recently been lowering their target levels for selling the dollar, are likely to take advantage of any rebound in the U.S. currency.
For example, Canon Inc
"There will be sizable dollar offers from Japanese exporters at 82 yen and 82.50 yen at the end of month. I expect the dollar's rebound to be capped around 82.50 yen at best," said Daisuke Karakama, a market economist at Mizuho Corporate Bank.
The euro
It may have support at $1.3724, its daily ichimoku kijun line. Another support level is its Oct. 20 low of $1.3697.
Many analysts say the gap between euro zone and U.S. short-term rates means the euro is unlikely to fall below $1.35 in the coming months.
"We suspect the Fed will confirm that medium-term deflation risks still justify easing, and with 10-year rates now above Jackson Hole levels, the resulting rally in bonds should soften the dollar again," JPMorgan analyst Justin Kariya said in a report.
A Reuters poll showed Wall Street analysts expect the Federal Reserve to buy between $80 billion and $100 billion worth of assets per month under a new programme widely expected to be unveiled on Nov. 3.
The New Zealand dollar managed to brush aside a Reserve Bank of New Zealand decision to hold rates steady at 3 percent and recovered from a three-week low.
Traders appeared to take comfort from the New Zealand central bank's remarks that rates would still head higher at some point. The market expects rates to rise to 4 percent by the end of next year.
The kiwi rose 0.2 percent on the day to $0.7476
($1=81.69 Yen)
About the author: Reuters
 |
