Kevin Buckland
TOKYO (Reuters) – The yen continued to slide against the dollar on Tuesday as huge interest rate differentials weighed on the currency, despite fresh warnings from Japanese officials following two rounds of proposed dollar-selling interventions last week.
The Australian dollar fell from a nearly two-month high against its U.S. counterpart after the Reserve Bank of Australia kept interest rates steady as widely expected and refrained from increasing hawkish messaging in its policy statement.
The rate fell 0.36% to $0.6601, retreating from Friday’s high of $0.6650, a level previously seen on March 8.
“It was a bit of a ‘buy the rumor and sell the fact,'” said James Knightton, senior corporate FX dealer at Convera.
“Markets were ready for some belligerence, but the announcement was somewhat soft.”
Attention now turns to Governor Michelle Bullock’s press conference scheduled for 0530 GMT.
The US dollar rose 0.44% to 154.5635 yen, extending a 0.58% gain from Monday.
It fell to 151.86 yen on Friday for the first time since April 10 as softer-than-expected monthly U.S. employment data led to losses following Bank of Japan data that suggested official intervention could amount to about 9 trillion yen (58.37 billion US dollars). ).
Japan’s Finance Ministry refrained from commenting on whether it was behind the dollar sell-off, but top currency diplomat Masato Kanda reiterated on Tuesday that the government would “continue to maintain the same firm approach” to the yen’s erratic moves.
He also acknowledged that an orderly market would not require government intervention, but some analysts took this as a signal that the risks of intervention had diminished.
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The carry trade remains attractive: The Federal Reserve’s rate cut is likely to take some time, and the Bank of Japan is following a cautious approach to tightening rates after its first rate hike since 2007 in March, leaving a huge 370 basis point gap between ultra-low Japanese interest rates . long-term yields and their American counterparts.
At the same time, according to DBS analysts, even after last week’s rebound, the yen still remains the most undervalued currency in the G-10 group, while the dollar remains “highly overvalued.”
In a note to clients, they wrote: “We expect Japan to continue to lean toward excessive yen weakness.”
The index, which measures the currency against six major peers including the yen, pound sterling and euro, rose 0.04% to 105.19 after falling to 104.52 on Friday.
The euro was steady at $1.07655, while sterling was down 0.07% at $1.2552.
($1 = 154.2000 yen)