By Samuel Indyk and Kevin Buckland
LONDON (Reuters) -The U.S. dollar was largely stable on Tuesday while the yen pared earlier losses as Japanese officials issued fresh warnings after two rounds of suspected dollar selling intervention last week.
The Australian dollar fell from a nearly two-month high against its US counterpart after the Reserve Bank of Australia refrained from stepping up aggressive signals as some traders expected.
The currency, which measures it against six major currencies including the yen, sterling and euro, rose less than 0.1% to 105.23 after hitting a low of 104.52 on Friday.
The index is up almost 4% this year but fell almost 1% last week after the Federal Reserve ruled out further rate hikes and there were signs of a weakening US labor market.
“Overall, we are still structurally more positive on the US macroeconomy as a whole and think this is what will support the dollar in the coming year,” said Kirstine Kundby-Nielsen, currency analyst at Danske Bank.
The US dollar last rose just 0.1% to 154.06 yen, after previously rising as high as 154.60.
On Friday, the stock fell for the first time since April 10 to a low of 151.86 yen as soft US jobs data fueled losses after Bank of Japan data suggested an official intervention would cost around 9 trillion yen ($58 billion). dollars) could have been.
Japan’s finance ministry has refrained from commenting on whether it was behind the dollar’s selling, but top currency diplomat Masato Kanda reiterated Tuesday that the government will “continue to take the same firm approach” to disorderly moves in the yen.
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He also recognized that an orderly market does not require government intervention.
“Kanda noted that there was no need to intervene if markets were functioning well, implying that they have not been functioning well recently,” said Colin Asher, senior economist at Mizuho.
The carry trade remains a draw, with a Federal Reserve rate cut likely to take some time and the Bank of Japan taking a cautious approach to tightening after its first rate hike since 2007 in March, leaving a huge gap of 360 basis points between the ultra-low Japanese long-term interest rates and their American counterparts.
At the same time, DBS analysts estimate that even after last week’s rebound, the yen is still the most undervalued currency in the G10 group, while the dollar remains “highly overvalued.”
In a client note, they wrote: “We expect Japan to continue to lean against the JPY’s excessive weakness.”
The decline followed the RBA’s rate decision, which left rates unchanged but the central bank stopped short of reintroducing the tightening some had expected as inflation did not cool as sharply as forecast.
In her press conference after the central bank’s widely expected decision, Governor Michele Bullock said the board believes monetary policy is at the right level to return inflation to target levels. The RBA hopes the economy will not face additional rate hikes, Bullock added.
The Australian dollar was last down 0.5% at $0.6593, retreating from Friday’s high of $0.6650, a level previously seen on March 8.
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“It was a bit of ‘buy the rumor and sell the fact,’” says James Kniveton, senior corporate FX dealer at Convera.
“They (the RBA) remain vigilant to the upside risk, but the aggressive bias that markets expected has not occurred.”
The euro fell 0.1% to $1.0758 and sterling fell 0.2% to $1.2534 ahead of the Bank of England’s policy announcement on Thursday.
($1=154.2000 yen)
