FOREX-Dollar on defensive after U.S. payrolls

Trade the News

Tuesday September 07, 2010 05:30:00 AM GMT

*Risk currencies recovering after positive U.S. payrolls

*Dollar looks vulnerable against yen near 15-yr low

*Kiwi down slightly after earthquake

By Hideyuki Sano

TOKYO, Sept 6 (Reuters) - The dollar was on the defensive on Monday after firm U.S. payrolls data last week eased market anxiety over chances of a double-dip recession and boosted demand for the euro and growth-leveraged currencies.

The dollar looked vulnerable against the yen after failing to maintain its gains following Friday's payrolls data, though caution about Japanese intervention deterred further yen buying.

"Looking at price actions after Friday's payrolls data, people seemed to have been well-prepared for a rebound in the dollar/yen. Thus the dollar will be capped for now," said a trader at a Japanese bank.

"But on the other hand, we don't have strong reasons to buy the yen either. I expect the dollar/yen to be stuck in a narrow range," the trader said.

The euro changed hands at $1.2885, having risen to $1.2898 after the payrolls data on Friday, its highest in two weeks. It faces resistance around $1.2920-35.

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

The Australian dollar fetched $0.9155, down from late U.S. levels last week but still near a four-week high around $0.9176 hit after the U.S. payrolls figures.

The yen stood at 84.45 yen per dollar, not far from a 15-year peak of 83.58 hit late last month.

The yen has been bought in the past few months as investors tend to favour currencies of countries with a current account surplus when they want to avoid risky assets.

Positive balance of payments figures also mean dollar selling by Japanese exporters constantly outweighs dollar buying by Japanese importers, capping the dollar versus the yen.

The dollar/yen has had a very high correlation with U.S. yield levels 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.

On Friday, however, the dollar did not make much headway against the yen even as the payrolls data pushed U.S. yields sharply higher.

Data from the U.S. Commodity Futures Trading Commission showed on Friday that currency speculators trimmed their long positions on the yen last week but they still have big yen long positions.

Their long positions were cut to 49,904 from 51,069 contracts the week before.

Still, some analysts say the dollar could eventually gain.

"The U.S. dollar appears to be rebounding, which could make for a rise in the dollar/yen to 85-86 yen," said Masafumi Yamamoto, chief FX strategist at Barclays.

The New Zealand dollar dipped slightly at $0.7190, off Friday's four-week peak of $0.7218 after a magnitude 7.1 earthquake struck the country's second-largest city, Christchurch, causing widespread damage to infrastructure. (Editing by Michael Watson)

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