* Aussie tumbles as RBA surprises by holding rates at 3.75 pct
* Focus on when RBA will raise interest rates next
* Dollar and yen rise as Aussie falls after RBA
* Market awaits White House adviser Volcker's testimony
By Masayuki Kitano
TOKYO, Feb 2 (Reuters) - The yen rose off earlier lows
against major currencies and the Australian dollar slid on
Tuesday after Australia's central bank kept interest rates on
hold, surprising investors who had been bracing for a rate rise.
The Australian dollar slid about a full cent against the
dollar in a matter of minutes after the Reserve Bank of Australia
(RBA) held its key cash rate steady at 3.75 percent on Tuesday,
defying market expectations for a rate rise to 4.0 percent.
[]
That move spilled over into other major currencies, with the
euro initially sliding against the dollar and the yen rising
broadly. []
The yen may have more room to rise depending on what White
House adviser Paul Volcker has to say about a White House plan to
curb financial risk-taking later on Tuesday, said Minoru Shioiri,
chief manager of FX trading at Mitsubishi UFJ Securities.
Volcker will appear before the Senate Banking Committee on
Tuesday to defend the administration's proposal, which spooked
investors and triggered a sell-off in equities when it was first
unveiled last month.
"If Volcker says anything specific about possible regulation,
equities may react negatively and the dollar and the yen may both
strengthen," Shioiri said.
The dollar and the yen are used as funding currencies in
carry trades, which involve selling low-yielding currencies to
invest in higher-yielding assets.
According to testimony obtained by Reuters, Volcker will urge
Congress to curb the risks taken by large banks to help prevent
them from being treated as "too big to fail".
Market players said the currency market reaction to the
reported comments by Volcker was limited. []
The Australian dollar shed 1.1 percent against the dollar to
$0.8811 <AUD=D4>, and fell 1 percent against the yen to 79.94
yen <AUDJPY=R>.
The euro fell to an intraday low near $1.3885 <EUR=> down
from roughly $1.3920 on the RBA's rate decision, but later
trimmed its losses to stand at $1.3928, steady on the day.
The dollar index, which measures the dollar's value against a
basket of six major currencies, held steady at 79.240 <.DXY>
after hitting a peak of 79.534 earlier this week, its highest in
nearly six months.
Against the yen, the dollar fell to lows around 90.55 yen
after the RBA decision, but later trimmed its losses to stand at
90.79 yen <JPY=>, up 0.2 percent on the day.
Market players dumped long positions in the Australian dollar
against both the dollar and the yen even though the RBA left open
the possibility of future interest rate rises in its statement,
said a forex manager for a Japanese trust bank.
The Australian dollar, a popular investment target in carry
trades, may face a further pullback, the forex manager said.
"Such carry trade reduction is already seen in other
currencies like Brazil's real," the manager added.
Earlier, there was some focus on a Financial Times report on
Tuesday quoting Japan's banking minister, Shizuka Kamei, as
saying the government-owned financial conglomerate Japan Post
should buy more corporate bonds and U.S. Treasuries, rather than
Japanese government bonds. []
Some traders said Kamei's remarks in the FT was a drag on the
yen, although others played down the impact, saying talk about
the possibility of Japan Post diversifying away from JGBs into
assets such as foreign bonds was not new.
In December, Kamei said he wanted Japan Post to manage its
assets broadly and not simply focus on JGBs. []
(Additional reporting by Anirban Nag in Sydney and Satomi
Noguchi in Tokyo; Editing by Hugh Lawson)
