FOREX-Dollar dips, hovers near 15-year low vs yen

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Tuesday September 07, 2010 11:10:08 PM GMT

* Risk currencies firm after positive U.S. payrolls

* Dollar looks vulnerable against yen, near 15-yr low

* Euro up, near three-week highs vs USD

(adds quote, changed byline and dateline, pvs TOKYO)

By Anirban Nag

LONDON, Sept 6 (Reuters) - The dollar dipped on Monday and looked poised to test a 15-year low against the yen after failing to retain gains made after U.S. jobs data, while the euro hit a three-week high on better risk appetite.

Less-dire-than-expected U.S. payrolls data last week eased market anxiety over chances of a global slowdown and boosted demand for growth-linked currencies like the Australian dollar.

"We are seeing some relief from fears about a double-dip recession in the U.S. helping risk sentiment and the euro," said Gareth Berry, currency strategist at UBS. "But whether this sentiment can be sustained or not is difficult to say."

U.S. non-farm payrolls fell 54,000, a much smaller drop than the predicted 100,000. Private employment, considered a better gauge of labour market health, increased 67,000.

Rising risk appetite has tended to help the euro and higher- yielding currencies in recent months, as investors increasingly see the dollar as a funding currency for investments on expectations of a prolonged period of near zero U.S. rates.

The euro was up 0.1 percent at $1.2907, having risen to $1.2918 earlier in the day, its highest since Aug. 12. Resistance is seen around $1.2932, the high struck on Aug. 12.

Market participants said they believed Asian central banks, excluding Japan, are converting dollars into euros after they intervene to rein in gains in their own currencies against the greenback, further boosting the euro.

YEN LONG POSITIONS TRIMMED

The dollar fell 0.14 percent against the yen to 84.20 yen, not far from last month's 15-year low of 83.58. It hit 85.23 after the jobs data, but quickly erased the gains.

Dollar/yen has been very highly correlated with U.S. bond yields in recent months. The lower U.S. yields are, the cheaper the dollar is against the yen, as lower yields tend to discourage investment in the dollar from Japan.

Investors have also bought yen in the past few months as they tend to favour currencies of countries with a current account surplus when they want to avoid risk. The rise had caused headaches for Japanese policymakers battling deflation at home and counting on exports to jump-start the economy.

"Because the dollar has low interest rates despite the U.S. twin deficits, its weakness tends to stand out even against the yen," said Tohru Sasaki, chief FX strategist at J.P. Morgan Chase Bank, in Tokyo.

"This shows the dollar/yen is unlikely to rise whether global markets are leaning towards risk taking or not," he said.

Speculators trimmed their long positions on the yen last week but still have big yen long positions, data from the U.S. Commodity Futures Trading Commission showed on Friday. Net long positions were cut to 49,904 from 51,069 contracts.

Berry at UBS said hedge funds were selling dollar/yen while other asset managers were emerging as bit buyers. He added hedge funds believed U.S. data would remain soft, putting downward pressure on U.S. yields and dollar/yen.

On Saturday, Japanese Finance Minister Yoshihiko Noda said Tokyo would take decisive steps to stem the yen's rise when needed while suggesting coordinated currency intervention in the market was a difficult option..

Many dealers suspect Japanese exporters still have dollars to offload ahead of their half-year finish in September. Their offers are expected to be lined up above 85.00 and onwards.

The New Zealand dollar erased slim losses earlier to stand at $0.7241, up 0.4 percent, after a powerful earthquake struck the country's second city, Christchurch, on Saturday.

(Additional reporting by Tokyo forex team)

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