The Australian dollar backed off four-year highs versus the yen on Monday as markets waited with bated breath to see how far Japan's central bank would go to meet expectations of aggressive reflationary action.
Knowing the Bank of Japan (BOJ) has a habit of disappointing, investors booked some profits on recent hefty gains. The Aussie eased 0.5 per cent on the day to 94.22 yen , but remained close to Friday's peak of 95.02, a level not visited since 2008.
Facing relentless political pressure, the BoJ is expected to at least top up its asset-buying and lending programme by another 10 trillion yen and double its inflation target to 2 percent at its Jan 21-22 meeting.
Dealers, however, are cautious as anything less than radical would see the yen rally.
"The challenge for the BoJ is to surprise the markets with something beyond 2 percent and 10 trillion, but history suggests they come up with underwhelming responses," said David Scutt, a trader at Arab Bank Australia.
"(Should it be the case), it will be 'sell the fact' and 'sell the fact hard' given the recent (one-way) positioning," he said, seeing the Aussie test a double-bottom near 92.5 yen.
On the longer-term, however, Scutt said the Aussie's target was well and truly above 100 yen.
A sustained recovery in the Japanese economy would certainly be welcome by Australia, for whom Japan is a major export market. It would also bolstering global growth, trade and commodity prices.
Chart resistance for the dollar was seen at 95.45, the 76.4 per cent of the 55.0/107.9 move and around 77.86 yen for the kiwi.
With all eyes on the BoJ, the Antipodeans marked time against the US dollar. The Aussie edged up to $US1.0515, little changed from Friday's late local level, but within reach of a four-month peak around $US1.0600 set earlier this month.
Initial support was found at around $US1.0475/80, the 20-day moving average (MA), ahead of $US1.0460, the 55-day MA. Resistance was seen at $US1.0520.
The dollar shot up to multi-month highs against a floundering pound which plumbed to A$1.5056, its weakest since August.
Sterling has come under pressure across the board after weaker-than-expected retail sales data at home on Friday combined with fears of a return to recession with GDP figures due out on Friday.
It has skidded more than 3 per cent this year against each of the dollar and charts suggest further downside. The 5, 10- and 20-day MA point south with support seen at A$1.5000, the lower edge of the Ballinger band, ahead of A$1.4850.
Australian bond futures edged up with the three-year contract up 0.02 points to 97.220, and the 10-year contract 0.035 points higher at 96.650.
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