RBA keeps growth currencies under cosh, yen gains

TOKYO (Reuters) - Commodity currencies fell broadly on Tuesday after the Reserve Bank of Australia kept interest rates on hold and again left the door open for an easing should the economy weaken materially.

A second day of falls for units such as the Australian dollar and the kiwi -- hit yesterday when China announced its lowest annual growth target in eight years -- supported the yen against the dollar.

But market participants noted there were many investors waiting to scoop up the greenback on any dips as they expect it to resume its rally on the Japanese unit.

"The RBA decision was broadly in line with expectations, but we saw the yield on the two-year bond dip and that's what put the Aussie under some pressure," said Koji Fukaya, chief currency strategist at Credit Suisse in Tokyo.

The Australian dollar slipped by around 0.4 percent to the session trough of $1.0612, pushing lower after it triggered some stop losses on the way south.

A drop below its February 23 low of $1.0597 would take it to the lowest level in about a month. The Aussie also shed 0.6 percent versus the yen, last fetching 86.45 yen.

That saw the yen strengthen against the dollar which has retreated after failing to break above a nine-month high of 81.86 for a second time. It was last at 81.39, some 20 pips below late New York levels.

"The dollar uptrend against the yen remains largely unscathed," said Credit Suisse's Fukaya. "We have quite a few major events this week, including U.S. jobs data, so people are simply taking profits on its massive rally for now," he said.

The dollar has muscled up nearly 7 percent on the yen since late January, helped by a surprise Bank of Japan easing and Japan's trading deficit.

PRESSURE OFF

The fall in commodity currencies took some pressure off the euro, which recovered from a two-week low against the greenback as it rose on the Australian and New Zealand dollars.

The euro stood at $1.3198, having slid as low as $1.3160. Against the Aussie, it fetched A$1.2418 after climbing nearly 1 percent on Monday. It jumped 0.6 percent on the kiwi to NZ$1.6199.

The euro was also supported by a rare piece of good news from Europe, where major Greek bondholders voiced their support for a deal that will more than halve the value of their holdings as their contribution to keeping the country afloat.

Ahead of the Thursday deadline, Greece and its creditors are in the final stages of talks aimed at a deal that would cancel more than 100 billion euros of its private sector debts - a key part of a 130 billion euros bailout, the second rescue Athens has required.

"Notable is that the New Zealand dollar, the risk darling of early 2012, is currently suffering more than Australian dollar, suggesting that a broader risk-off, not just commodity price, story is at play here," BNP Paribas analysts wrote in a note.

China's growth target of 7.5 percent barely caused a ripple in financial markets when first announced in Asia on Monday as Beijing is known to set the bar low so as to easily exceed it.

But investors in Europe and the United States appeared to have used the lower target as an excuse to take profits on long positions in commodities like copper and currencies linked to global growth.

"I'm seeing this as a significant correction after a strong rally at the beginning of the year. There is potential to see the Aussie get back down to 1.05," said Greg Gibbs, strategist at RBS in Sydney. But Gibbs expects the Aussie to recover in the second half of the year, believing it will again re-test

$1.10.

Traders said the bigger picture hasn't really changed. Liquidity injections from the major central banks and ultra-low interest rates in the United States and Europe meant there was still a lot of money chasing after higher yielding assets.

Highlighting this, German Chancellor Angela Merkel expressed understanding for problems facing emerging countries due to a flood of cheap money from leading industrial nations, shortly before meeting Brazil's President on Monday.

But analysts said markets are reaching a point where they no longer expect further stimulus from major central banks, at least for the time being, and this could make risky assets more vulnerable to waves of correction.

Source: http://news.yahoo.com/rba-keeps-growth-currencies-under-cosh-yen-gains-055013086.html

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