Yen intervention impact fades while Aussie dollar holds steady

[SINGAPORE/LONDON] The yen hovered close to 160 per dollar on Tuesday (Aug 11) as the impact of US-Japan intervention continued to fade while the Australian dollar held near an eight-week high after the central bank left interest rates unchanged, as expected.

The Japanese currency was last at 159.1 per dollar, slightly stronger on the day. It had weakened by 0.9 per cent on Monday, moving further away from last week’s three-month high of 155.20 after the rare US-Japan yen-buying intervention at the end of July.

The intervention came after the yen sank to a 40-year low of 163.99 per dollar. It has since surrendered nearly half of those gains, leaving traders betting it is a matter of when, not if, authorities step back into the market.

“This week coincides with Japan’s Obon holiday period, when reduced market participation tends to lower liquidity, potentially increasing the risk of sharp market moves during thin trading hours,” said Masayuki Nakajima, senior strategist at Mizuho.

“In particular, if (the dollar) were to break decisively above the psychologically important 160 (yen) level, concerns about intervention could intensify further.”

Speculators have cut bearish yen bets by the most in more than 12 years, with US regulatory data showing the net short yen position fell by US$8.865 billion to US$3.604 billion in the week to August 4.

However, as in previous intervention episodes, analysts expect speculators to rebuild short positions, though the prospect of faster monetary tightening in Japan remains a risk.

Elsewhere, the Reserve Bank of Australia kept its cash interest rate at 4.35 per cent, as expected, but warned it may need to raise rates again. The RBA has increased rates by 75 basis points since February to combat inflation fuelled by surging energy costs.

The Australian dollar was steady at US$0.7054, hovering near its strongest since mid-June.

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The week’s main event for currency markets is a run of US inflation data that has kept traders cautious and the dollar largely range-bound.

Wednesday’s consumer price index data could show the Iran war’s impact on inflation. Producer price data on Thursday and retail sales figures on Friday are expected to provide further clues on the inflation outlook.

The US dollar index was broadly steady at 99.82 as oil prices hovered near one-week highs on fading hopes for a US-Iran agreement to end the Middle East conflict.

The euro fetched US$1.1539 and sterling US$1.350, both little changed on the day.

China’s yuan remained near a 3-½-year high against the dollar, with the offshore yuan at 6.746 per dollar and the onshore yuan at 6.745. REUTERS