By Ankur Banerjee
SINGAPORE, Aug 11 (Reuters) – The yen wobbled near the crucial 160 level on Tuesday, as joint U.S.-Japan intervention failed to deliver a lasting boost, while the Australian dollar held its ground near eight-week highs after the central bank held rates as expected.
The Reserve Bank of Australia maintained its key cash rate at 4.35% as expected but cautioned it might have to increase again. The RBA has already raised rates by 75 basis points since February to contain stubborn inflationary pressures in the face of surging energy costs.
The Aussie was steady at $0.7054, hovering near its strongest level since mid-June after the decision.
The yen wavered at 159.20 against the U.S. dollar in Asian hours after dropping 0.9% on Monday, moving further away from the three-month high of 155.20 hit last week in the wake of the rare U.S.-Japan yen-buying intervention at the end of July.
The joint effort came after the yen sank to a 40-year low of 163.99 per dollar but it has since lost nearly half of the gains, leaving traders speculating it was a matter of when, not if, authorities would return to the currency market.
Trading was thinner than usual, with Japanese markets closed for a holiday and traders remaining on the lookout for signs of intervention from authorities.
Speculators slashed their bearish bets on the Japanese yen by the most in over 12 years, with data from a U.S. regulator showing the net short position in the yen fell by $8.865 billion to $3.604 billion in the week to August 4.
But as in previous episodes of intervention, analysts suspect that speculators will use the opportunity to rebuild their short positions, although the spectre of faster monetary tightening in Japan looms large.
“Coordinated intervention could lead to a faster pace of Bank of Japan rate hikes,” said Shusuke Yamada, head of Japan FX/rates research at Bank of America, who remains constructive on the yen and has revised his year-end forecast to 149 from 152.
“Through its influence on the policy narrative and on overseas investors’ hedging strategies, this could provide longer-term support for the yen,” said Yamada.
Traders are pricing in just a shade over 50% chance of a rate hike from the BOJ, LSEG data showed. The BOJ’s tightening path is also being complicated by rising political pressure to support the bond market.
Kieran Williams, head of Asia FX at Intouch Capital Markets, said the move in dollar/yen after the intervention was not a surprise, noting “this is what happens when intervention is not backed by a change in the (interest rate) differential.”
“What would trigger a fresh operation is a retest with no U.S. data or policy driver behind it on the day, since that is what lets them call it disorderly,” said Williams.
He added that the 100-day moving average for yen, currently at 160.01, is the first test of the intervention’s staying power and looks vulnerable heading into the U.S. inflation report due on Wednesday.
The U.S. consumer price index data could reveal the impact of the Iran war on pricing pressures with producer price data on Thursday and retail sales figures on Friday offering further clues on the path of inflation.
The U.S. dollar was broadly steady as oil prices hovered near one-week highs amid dimming hopes of a deal between the U.S. and Iran to end the conflict in the Middle East.
The euro fetched $1.1544 while sterling
(Reporting by Ankur Banerjee in Singapore; Editing by Stephen Coates and Kate Mayberry)
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