The yen retreated across the board Tuesday as investors waded back into risky carry trades, sparked by gains in global equities and a rise in commodity prices.
The Australian dollar in particular was a strong performer amid firmer metal prices and stronger-than-expected building approvals data in Australia for November.
The U.S. dollar, meanwhile, edged lower against a basket of major currencies, but traded within narrow ranges. Analysts said much of the bad news on the world's biggest economy has already been priced into the market and a sharper than-expected fall in U.S. pending home sales data for November failed to trigger a fresh bout of dollar selling.
"Equities are still up on the day and that is emboldening carry traders a little bit so both dollar/yen and euro/yen and high-yielding currencies are still in positive territory," said
Stephen Malyon, senior currency strategist at Scotia Capital in Toronto.
Investors using the risky carry trades borrow low-yielding currencies such as the yen to buy higher-yielding ones including the Australian and New Zealand dollar.
Carry traders took their cue from rising U.S. stocks Tuesday, buoyed by news of a reshuffle at Starbucks The rise in oil prices has also fueled gains in shares of energy companies.
In late morning New York trading, the dollar was up against the yen . The euro also rose against the yen .
The yen had benefited at the start of the year as poor U.S. jobs data and falling equity markets led to heightened risk aversion.
The Australian dollar jumped against the Japanese currency and the U.S. dollar to trade, cheered by gold prices hitting record highs above $876 an ounce and data showing strong growth in Australian building approvals.
Canada, another commodity producer, also saw its currency strengthen versus the U.S. dollar.
The dollar index was lower as pending sales of existing U.S. homes fell 2.6 percent in November from an October level that was revised sharply upward.
"The best we can say (about pending home sales) is that there are no clear signs of housing bottoming yet, even if the pending sales data does show some deceleration in the deterioration," said Alan Ruskin, chief market strategist, at RBS Greenwich Capital in Greenwich, Connecticut.
Markets overall are still spooked about prospects of a U.S. recession even though the head of the National Bureau of Economic Research said on Tuesday the economy has not entered one yet. He added though that there is a "serious risk" the U.S. economy could slip into recession.
The euro rose against the dollar, helped by its gains against the yen, but remained below Friday's five-week high of $1.4824. Weaker-than-expected euro zone retail sales data for November did not shake expectations the European Central Bank will leave rates on hold this week.
In the United States, many market players believe the Federal Reserve is likely to cut rates by a hefty half percentage point at its late January meeting to 3.75 percent, even though inflation remains a concern for policy-makers.
PIMCO fund manager Bill Gross, for one, said in an investment outlook posted on Tuesday he expects the Fed to cut interest rates to 3 percent by mid-year.