TOKYO: Risk currencies were on the defensive while the Japanese yen held firm on Wednesday as doubts over whether Greece can pull together a bond swap deal with creditors prompted players to cut exposure to risky assets.
Among the biggest casualties, the Australian dollar slid to a near six-week low against the US dollar, while the country's growth in October-December also turned out to be lower than expected.
A clutch of Greek pension funds and some foreign investors are holding back on the bond swap deal, raising fears that Greece may not secure a deal with private creditors to cut its mountainous debt by the Thursday deadline.
A low participation in the bond swap plan, a key part of a bailout programme to help Greece manage its wrecked finances and meet a debt repayment on March 20, could lead to the disorderly default policymakers have been toiling to avoid.
"I think we are at a watershed now. If the Greek debt swap goes well and the US job data points to continued recovery, then the market could return to the risk-on mood," said a trader at a Japanese bank.
"But if Greece could not get the deal, then that would be a game changer," he added.
The euro plumbed a three-week low at $1.3103 on EBS late on Tuesday, but has managed to stay above solid supports around $1.31, including the cloud top of daily Ichimoku charts at $1.3097 and the 76.4 percent retracement of its rally in mid to late February at $1.3095.
It bounced back in Asia to around $1.3142, up 0.2 percent from late US levels as the disappointing Australian data prompted unwinding of short positions against the Aussie, a popular trade this year.
The euro rose 0.2 percent to A$1.2460. It hit a record low around $1.2124 last month as investors sold the euro for the Aussie on the view that a high-yielding Aussie will benefit from a massive fund injection from the European Central Bank.
The Aussie fell to a six-week low against the US dollar after disappointing Australian GDP data, shedding some 3 US cents from a seven-month high set just last week.
The Aussie touched a low of $1.0508, briefly breaking below a major support of $1.0525, before paring losses to fetch $1.0550.
A clean break of $1.0525 could pave the way for a move to the $1.0370-00 major pivot, traders said.
GROWTH WORRIES
Apart from Greece, there are other risk events ahead, not least closely watched Chinese inflation and US jobs data on Friday.
China cut its growth target to the lowest level in eight years and Brazil announced a disappointing economic performance for 2011, raising doubts on the rosy scenario that emerging market powerhouses will offset weak growth in the advanced economies.
Nervous investors unwound some of the recent bearish positions placed on the Japanese currency, helping the yen firm across the board.
The dollar fell as low as 80.56 yen, well down from a nine-month peak of 81.87 set earlier this month, although it handily held above a key support from 23.6 percent of its February rally at 80.50.
"Since the yen had been sold sharply recently, there is room for more adjustment. But I do think there's pretty strong dollar demand at around 80 yen," said Sumino Kamei, senior currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
Traders said a break above 81.60 is now needed to reset the upwards momentum for dollar/yen and put 82.20 back in focus.
The euro also pulled further away from a recent high of 109.95 yen to stand at 106.25 yen.
Renewed pressure on the single currency saw the dollar rise 0.7 percent against a basket of major currencies on Tuesday to its highest since February 16.
The dollar index stood at 79.68 in Asia, not far from Tuesday's high of 79.867, and it now eyes a test of a very thin cloud on daily Ichimoku charts, a break above which could be considered as a major bull sign.
On Wednesday, the bottom of the cloud comes at 79.854 and the top at 79.867, which means the index needs to rise above Tuesday's high to break above the cloud.
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