Dollar back on defensive in Tokyo

The dollar drifted against a basket of currencies on Tuesday but stayed soft against the Australian dollar, which earlier hit a 14-month high boosted by optimism that robust US corporate earnings would sustain investors' risk appetite. The New Zealand dollar also shone, hovering not far from a 14-month high, after retail sales figures for August beat expectations and fuelled talk the central bank might soon drop its explicit easing bias.
Although overall activity was subdued in Asia, growth-linked and higher-yielding currencies such as the Aussie and the kiwi were supported ahead of more US earnings this week. "It seems the dollar is getting some respite from its fall against the yen but higher-yielding currencies remain strong and the general tone of the market still points towards dollar weakness," said Kazuyuki Kato, treasury department manager at Mizuho Trust & Banking.
"Investors are still shifting funds into higher-yielding currencies and commodities," he said. The dollar edged up 0.1 percent to 89.90 yen from late US trading on Monday, when the US currency rose as high as 90.47 yen with stops being triggered around 90.30 yen and sellers lining up around 90.50. The dollar index was steady at 76.170, not far from a 14-month low of 75.767 struck last week.
The greenback received a brief reprieve late last week and early on Monday after Federal Reserve Chairman Ben Bernanke said late on Thursday the US central bank stood ready to tighten monetary policy once economic recovery took hold, prompting speculators to cover dollar shorts. But investors are now focused again on US corporate earnings, which if they beat expectations could boost the appetite for high-yielding currencies, analysts say.
Some investors sell the US dollar when economic optimism grows, buying assets such as stocks and commodities instead. The Australian dollar was steady at $0.9077 after rising as high as $0.9096, its highest since August 2008. The New Zealand dollar edged down to $0.7372 after rising near a 14-month peak of $0.7457 struck last week.
"Contrary to its promise to keep the cash rate at its current level until late 2010, we suspect the (New Zealand) central bank will, albeit reluctantly, begin a tightening cycle by the second quarter of next year," said Su-lin Ong, a senior economist at RBC Capital. The euro was little changed at $1.4780 with resistance seen around $1.4815. Against the yen, the euro rose 0.2 percent to 132.93 yen.