The yen hit a three-week high on Tuesday on a flurry of stop-loss buying that kicked in after investors reduced massive short positions built in recent weeks, though the broad trend for a weakening Japanese currency remained intact. The dollar tumbled from the previous day's peak of 83.31 yen to a session low of 81.55 after stop-loss trades were triggered in the 81.90-80 area, with traders citing sales by offshore leveraged funds and some Japanese investors.
The fall was prompted after traders rushed to cover short positions, which according to the Commodity Futures Trading Commission hit a 4-1/2 year high in the week ending March 27. The greenback later recovered to trade flat at 82.06 yen, with investors saying it was simply taking a break after its February-March rally to 84.19 from 76.21.
"The yen has strengthened technically after this move, and while its long-term weakening trend remains intact we may see further correction on the dollar rally over the next few weeks," said Teppei Ino, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in Tokyo. Analysts, however, expect it to hold the level, and slowly drift higher supported by Japan institutions which usually launch fresh toushin investment trusts and make large purchases of foreign government bonds after the start of the fiscal year.
The yen also rose on the euro, hitting a two-week high at 108.70, before shifting 0.2 percent lower on the day to 109.47. The Australian dollar pared its gains after the Reserve Bank of Australia kept interest rates unchanged at 4.25 percent as expected, but showed easing bias by adding growth was somewhat lower than estimated. The central bank also said it would be prudent to wait for forthcoming inflation data before considering easing. The Aussie initially surged around 30 pips to an intraday high of $1.0470, but then quickly gave back its gains and dipped to A session low of $1.0390. It last hovered at $1.0397, down 0.1 percent from late New York levels.
The euro licked its wounds after dipping to this week's low of $1.3278 on Monday as data showed unemployment in the euro zone reached its highest in almost 15 years in February and manufacturing contracted for an eighth straight month in March. It recouped some losses, gaining 0.1 percent to $1.3338, inching back towards Monday's high of $1.3381. Since the mid- to late-March rally from $1.3000 to $1.3386 fizzled out, it has been drifting in a relatively thin $1.3250-3400 range.