The dollar dipped versus the yen on Tuesday, having pulled back from a three-month high as the impact of Japan's massive intervention faded a touch, while growing doubts over a plan to contain Europe's debt crisis weighed on the euro. The Australian dollar fell after country's central bank cut interest rates by 25 basis points to 4.5 percent, with interest rate futures suggesting investors were bracing for further easing.
Trading in dollar/yen remained relatively choppy after Japan's yen-selling intervention on Monday, which major Japanese daily the Asahi newspaper said reached a record 10 trillion yen ($128 billion). That was broadly in line with estimates among some market players of between $90 billion to $130 billion, and would exceed the roughly $59 billion in yen-selling intervention that Japan conducted during its previous intervention in August.
Steve Barrow, strategist at Standard Bank, said if the intervention was not repeated, just as the case back in August, then dollar/yen could quickly return to the 75 region. Earlier, the dollar briefly surged around 60 pips or so to an intraday high of 79.10 yen but then quickly gave back its gains, and traders said the rise was unlikely to have been caused by intervention.
The dollar dipped 0.1 percent to 78.12 yen, having backed off a three-month high of 79.55 yen hit on Monday but well above levels seen before intervention of around 75.65 yen or so. Japan's previous intervention in August, as well as the joint yen-selling intervention it conducted with other Group of Seven nations in March, were both one-day actions, and it is unclear whether Japan is ready to intervene more frequently this time around.
Japan may have a hard time gaining international understanding toward efforts to weaken the yen at a time when European and US economies are facing difficulties as well, Tanase said, adding that the dollar was likely to trade roughly between 75 yen to 80 yen for the rest of the year.
The euro dipped 0.4 percent to $1.3806, pulling further away from a peak of $1.4248 hit last week after the debt deal was announced. The Australian dollar fell 1 percent to $1.0441, retreating after the Reserve Bank of Australia's rate cut, with weakness in Asian equities and US stock index futures adding to pressure against the growth-leveraged Aussie dollar.