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Yen eases, Aussie boosted as risk appetite improves

The yen eased and riskier currencies like the Australian dollar rose on Monday after surprisingly strong Chinese factory activity data eased fears about a hard landing by the world’s second-biggest economy.

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The high-yielding Australian and New Zealand dollars, which are positively correlated with risk-seeking behaviour, rose after a report on Sunday showed activity at big Chinese factories hit an 11-month high in March.

The yen was down broadly as demand related to last week’s financial year-end in Japan abated and a solid performance in equity markets prompted some weakness in the safe-haven Japanese currency into the new fiscal year.

“There’s a brighter footing for riskier currencies but I would take the China data with a note of caution as small and medium-sized companied are underperforming and in the bigger picture there are still signs of a moderate slowdown in China,” said Lee Hardman, currency strategist at BTM-UFJ.

The dollar was up around 0.2 percent on the day at 82.96 yen , while the euro also gained 0.3 percent to 110.81 yen .

The upbeat data provided respite for the Aussie dollar , which had hit a two-month low of $1.0305 last week as investors fretted about the chance of a sharp economic slowdown in China, Australia’s single biggest export market.

After jumping to $1.0470 in early Asian trading on Monday, up more than a full cent compared with its levels in late US trade on Friday, the Aussie eased back to $1.0412 in European trade, up around 0.7 percent for the day.

Against the yen, the Aussie climbed to 86.30, pulling well away from last week’s trough around 84.60.

Apart from a brighter economic outlook overseas diluting the yen’s safe-haven status, it was also hurt by a weaker-than-expected reading in the “tankan” survey of sentiment at big Japanese manufacturers, which put the spotlight on whether the Bank of Japan may conduct additional monetary easing as early as next week.

NEW FINANCIAL YEAR

With Japan’s fiscal year-end out of the way, there is now less chance of the yen drawing support from seasonal fund repatriation by Japanese companies, market players say.

“Seasonal factors that have been holding back dollar/yen for the past two weeks or so have been eliminated and it’s plain sailing from here on in,” said Gareth Berry, associate director of G10 FX strategy for UBS in Singapore.

“At least that’s the sort of view from the international investment community,” Berry said, adding that UBS was looking for the dollar to rise to 85 yen in three months.

In a sign of bearish market sentiment against the yen, a gauge of market positioning shows that currency speculators had ramped up net short positions in the yen in the week ended March 27 to the highest since July 2007.

The euro edged up against the dollar to $1.3371, shrugging off data which showed the euro zone manufacturing sector shrank for an eighth straight month and at a faster pace in March.

“There’s an increasing risk of a more prolonged recession in Europe and economic fundamentals argue in favour of a further downward adjustment in euro but for now the market is short which is preventing fresh selling,” said Hardman.

The euro was close to a one-month high of $1.33857 while the dollar stayed near a one-month low versus a currency basket hit last week when dovish rhetoric from Federal Reserve Chairman Ben Bernanke weighed broadly on the greenback.

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