TOKYO/SYDNEY, June 4: The U.S. Dollar rebounded from one-month lows against a basket of currencies on Tuesday after suffering a sharp setback in the previous session, when disappointing data curbed speculation the Federal Reserve would scale back its stimulus anytime soon.
The dollar index found its footing at 82.756 after sliding as much as 1 percent to 82.428 on Monday following news the Institute for Supply Management (ISM)’s index of U.S. Factory activity fell to 49.0, its lowest since June 2009.
At 0335 GMT, the dollar index stood at 82.77.
The ISM data sent the greenback crashing through the psychologically important 100 yen level to a four-week low of 98.86 overnight, marking a 4.9 percent drop from a 4-1/2 year high of 103.74 set last month.
The dollar recovered to trade at 99.60 on Tuesday after sources told Reuters that Japan’s government will urge public pension funds – a pool of more than $2 trillion – to increase their investment in equities and overseas assets.
Market participants said the news would not be taken in earnest until the government announced it officially – which sources said could come as early as Wednesday, when Prime Minister Shinzo Abe is due to make a speech about his growth strategy.
‘I think a lot of people were waiting to buy on the dip, around the 99.5 level and so I think they are using this as a trading factor,’ said Kyosuke Suzuki, director of FX at Societe Generale in Tokyo.
‘But there’s still downside risk for the dollar-yen, with the Nikkei still in a correction phase.’
During the past two weeks, volatile trading of Japanese equities has strengthened the yen as investors unwind their long positions on the dollar and buying of Japanese shares, a trade that dominated the market since November.
Market participants say bullishness on the dollar in the past three weeks now looks overdone, as disappointing data such as the ISM suggests the Fed will not taper its asset-buying programme early. However, two Fed officials said on Monday that the move could still happen if the economy continues to improve.
‘We think USD long positions are likely to remain under pressure heading into Friday’s jobs report, and the employment number will likely need to beat the 165,000 consensus significantly to revive USD upside momentum,’ said Daniel Katzive, strategist at BNP Paribas.
Renewed pressure on the greenback saw the euro briefly pop above $1.3100 for the first time since May 9. It was last at $1.3068 with resistance seen at the overnight high of $1.3108. This is followed by $1.3141, the 76.4 percent retracement of its May 1-17 decline.
The euro also pulled away from a four-week low of 129.49 yen it struck overnight to trade close to late U.S. Levels at 130.12.
The Australian dollar lost 0.6 percent to $0.9711 on Tuesday after rallying more than 2 percent on Monday to $0.9792, posting its biggest one-day rise in about a year and pulling further away from a 19-month trough of $0.9528 plumbed on May 29.
The Aussie’s near-term driver will come from the country’s central bank policy decision due at 0430 GMT.
The Reserve Bank of Australia (RBA) is widely expected to keep its cash rate steady at a record low 2.75 percent. Markets are giving a mere one-in-eight chance of a quarter point cut, though the sudden rise in the Aussie could make the decision a closer call. See for the latest rate poll.
‘The RBA may keep the door open to lower the cash rate further amid the persistent slack in the real economy,’ said David Song, currency analyst at DailyFX.
‘The central bank may have little choice but to carry its easing cycle into the second-half of the year as it aims to encourage a stronger recovery.’ (AGENCIES)
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