TOKYO: The safe-haven yen pulled away from multi-week peaks against major currencies on Thursday after the European Central Bank official hinted at the possibility of more bond-buying, but an upcoming Italian debt sale posed more risks to jittery markets.
The Australian dollar shot up more than half a percent against the dollar and the yen after unexpectedly strong local employment figures eased worries the Australian economy could suffer from slower global growth.
Traders took profits on the Japanese unit which gained the previous session as riskier assets remained pressured with the euro zone debt woes back in focus and Spanish bond yields still close to a four-month high and the crucial six percent level.
The yen eased 0.2 percent helping the dollar climb back to 81.00 yen, up from a six-week low around 80.57, while the euro rose to 106.23 yen from Wednesday's trough of 105.45. The yen was sold by model and macro funds, traders said.
"Some players have bought the yen back on resurfacing euro worries, but this is likely to be nothing more than a correction to the broader weak yen trend," said Teppei Ino, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in Tokyo.
"While against the euro, the yen may still have some more space to strengthen, the stop in the fall in 10-year Treasury yields around two percent could serve as a signal to slowly buy the dollar back," he said.
Euro/yen was poised to make a decisive move on the charts, trapped above support at the 200-day moving average at 105.86 yen and resistance at the top of the Ichimoku cloud at 106.29, with 55-day moving average at 106.41 posing more resistance.
Helping euro sentiment, ECB Executive Board member Benoit Coeure said the scale of market pressure on Spain is not justified and the ECB still has its bond-buying programme as an option.
"A suggestion by an ECB board member that they could reactivate the SMP (Securities Markets Programme) facility helped to bring calm to a feverish Spanish bond market," said Sebastien Galy, strategist at Societe General.
"The relief could be felt more globally, but it was limited in scope indicating that we remain in a roller coaster and are not at the end of it yet."
Another test for the currency comes later in the day as Italian three-year borrowing costs are set to jump by a percentage point from a month ago at a bond auction, the latest sign investors' concerns about Spain are spreading to other euro zone countries hit by recession.
The relatively resilient single currency crept higher on the US dollar, reaching a one-week high of $1.3158, before retreating to $1.3116. That kept it well within the $1.3030-$1.3165 range trodden in the past week.
SURGING PAST EXPECTATIONS
The Aussie rose to as high as $1.0386 from around $1.0305, hitting its highest level in more than a week after Australian employment surged past all expectations in March while the jobless rate stayed at a low 5.2 percent.
Mounting expectations of an interest rate cut next month and fears about a hard economic landing in China, Australia's single biggest export market, have conspired to drag the Aussie 3.7 percent below this year's peak of $1.0857 hit in late February.
"Certainly a surprisingly strong number which does contrast with anecdotal evidence and poor consumer sentiment," said Amee Kaye, an economist at Macquarie.
"However, we don't think it changes the equation for a rate cut in May. The Reserve Bank has seen something that made it worried about growth being below trend and put the onus on inflation for an easing," said Kaye.
Markets are keeping an eye on the Federal Reserve's second-in-charge Janet Yellen, due to speak about "The Economic Outlook and Monetary Policy" at a dinner in New York at 2315.
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