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Dollar/yen dips after Pyongyang fires missile, Aussie falls

The dollar dipped against the yen on Tuesday after North Korea's missile launch deepened geopolitical concerns, while the Australian dollar slipped after the Reserve Bank of Australia did not sound as hawkish as some had anticipated.

The dollar was down 0.25 percent at 113.100 yen after going as high as 113.480 late on Monday, its strongest since mid-May.

100 dollar bills
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The greenback had earlier taken in stride news that North Korea had launched a missile on Tuesday, which Tokyo said appeared to have landed in its Exclusive Economic Zone (EEZ). But it took a dip after Pyongyang later said it would make a major announcement later in the day.

The dollar index against a basket of six major currencies was a shade lower at 96.178 after rising 0.6 percent overnight as a stronger-than-expected rise in the June Institute of Supply Management (ISM) national factory activity index propelled the 10-year Treasury yield to its highest since May 16.

Monday's developments helped the dollar index bounce back from a 9-month low of 95.470 plumbed on Friday.

The greenback was hit hard last week as expectations increased that central banks in Europe and Canada would eventually shift to tighter monetary policy.

"The dollar's latest rise is driven by direct demand, as opposed to the U.S. currency gaining thanks to the weakness of its peers," said Shin Kadota, a senior strategist at Barclays in Tokyo.

"Expectations towards the Federal Reserve hiking interest rates later this year had perhaps sunk too low. We are now seeing such lowered expectations being reversed a little."

The euro was effectively flat at $1.1369 after dropping 0.6 percent overnight. The common currency has taken a step back from a near 14-month high of $1.1445 scaled on Friday.

Pressure against the yen has been mounting as the Bank of Japan is expected to stick with its negative interest rate scheme in order to meet its inflation target while its counterparts seem poised to raise rates or begin exiting their accommodative policies.

"The yen is slipping against popular crosses like euro/yen, pound/yen and Aussie/yen, which is contributing to its weakness against the dollar," said Bart Wakabayashi, branch manager for State Street Bank and Trust in Tokyo.

Earlier, the euro edged up to a 16-month high of 128.970 yen, sterling was near a seven-week peak of 146.84 yen and the Aussie saw 86.96 yen, its strongest since March 21.

No boost for Aussie

The Australian dollar was 0.7 percent lower at $0.7609 following the RBA's monetary policy announcement.

While the RBA's decision to keep interest rates unchanged did not come as a surprise, currency bulls were disappointed as the central bank refrained from taking a hawkish tilt.

Australia's central bank stuck to its balanced view on the economy and interest rates on Tuesday, a marked divergence from some of its peers abroad who have recently signalled an intent to tighten.

The Australian dollar had risen to $0.7685 earlier in the session as some market participants had expected the RBA to join a shift towards a hawkish stance taken by peers like the European Central Bank, Bank of England and the Bank of Canada.