Dollar takes a breather, Aussie improves after RBA
London (Nov 4) The dollar took a breather versus the yen and the euro on Tuesday after a week of gains drove it to its highest levels since 2010 and put a longer-term rally back on track following a turbulent October.
In an Asian session quiet on data and market-moving news, the biggest mover was the Australian dollar, up almost half a percent at $0.8720 after the country's central bank stuck to its message on monetary policy and the currency.
A renewed slide in oil prices pushed oil-rich Norway's crown currency to 8.5485 crowns per euro, its weakest in five years.
Early in Europe the euro had recovered around 0.2 percent from lows below $1.25 hit on Monday while the yen had bounced around a third of a percent to 113.63, steadying after an almost 5-yen fall which was its worst in 25 years.
There was little faith, however, that the recovery was anything more than a steadying before the next push higher for the dollar.
"I don't think this is anything other than just a small retracement," said Graham Davidson, a spot currency dealer with National Australia Bank in London.
"It does seem like more broadly the genie is out of the bottle and the dollar will continue to gain."
The dollar index retreated as much as 2.5 percent in the first two weeks of October but has since taken all that back and more, reaffirming the wide-ranging consensus in markets that it is in the first stages of a multi-year push higher.
That picture was reinforced by the Bank of Japan's surprise move last week to ease monetary policy further, sending the yen spinning lower and raising some question marks over a European Central Bank meeting this week.
The ECB is pushing ahead with a number of measures to spur a moribund euro zone economy, but many analysts still expect it to have to take more dramatic action in the months ahead that will pump more euros into the system and weaken the currency.
Dealers said the expiry of 5 billion euros of options at $1.2500 should keep markets close to that level through the European session on Tuesday, barring surprises.
"The euro (should) remain on the back-foot heading into the ECB, with pressure on Draghi to address (the) latest core inflation dip and potential challenges in covered bond purchases," Citi strategist Josh O'Byrne said in a morning note to clients.
Japanese exporters and hedge funds sold dollars, taking some profit after the dollar rose to as high as 114.21 yen on Monday, its strongest level since December 2007. Japanese banks said domestic flows were as much as four times average volumes.
Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, said that while the dollar is likely to retreat against the yen if U.S. jobs data due on Friday were to prove in weaker than expected, any decline will probably prove to be a temporary setback.
"The market is taking a bit of a breather ... but in terms of the direction, I think we're still in the stage of testing how far it can go," Okagawa said.