By Satomi Noguchi
TOKYO, Jan 15 (Reuters) - The dollar edged towards a
seven-week low against the yen on Tuesday on concern that weak
bank earnings will push the U.S. economy closer to recession,
fuelling expectations for more interest rate cuts by the Fed.
The Australian dollar hit a fresh two-month peak against the
U.S. dollar, helped by a widening yield advantage as expectations
grew that Australian interest rates will rise as early as next
month on strong domestic data.
Record gold prices <XAU=> also lent the Aussie support.
Market players will be watching for indications of how much
the credit crisis is damaging U.S. banks' bottom lines and
increasing the risk of a recession.
Citigroup Inc <C.N> is the first big bank this week to report
fourth-quarter earnings, issuing its results later on Tuesday.
The largest U.S. bank is likely to announce a dividend cut,
at least $10 billion of new capital, a writedown of as much as
$20 billion and the loss of more than 20,000 jobs, the Wall
Street Journal reported on Monday. []
"The numbers for write-downs and job cuts at Citi could
heighten worries about banking sector problems and their impact
on the economy, if confirmed," said Kengo Suzuki, a currency
strategist at Shinko Securities.
The dollar fell 0.4 percent from late New York trade on
Monday to 107.75 yen <JPY=> as some Japanese exporters sold
dollars to repatriate overseas earnings as activity resumed after
a three-day weekend in Japan.
The dollar fell as low as 107.37 yen on Monday on electronic
trading platform EBS, the lowest since late November.
In addition, an ongoing slump in Tokyo's Nikkei share average
further dented investor risk demand, sparking some dollar selling
against the yen.
The Nikkei <> fell below the psychologically key 14,000
level on Tuesday for the first time since November 2005.
"The Nikkei's slide is prompting more risk aversion, making
it difficult for the dollar to rise against the yen," said
Hiroshi Yoshida, a forex trader at Shinkin Central Bank.
The euro edged up to $1.4874 <EUR=> but was off Monday's peak
of $1.4915, a seven-week high.
The dollar was down 0.3 percent at 1.0900 Swiss francs <CHF=>
after falling to a record low of 1.0886 on EBS in the previous
session.
The Australian dollar edged up 0.1 percent to $0.9005 <AUD=>
after rising as high as $0.9012, its highest since mid-November,
Reuters data showed.
FED RATE CUT VIEW
Fed Chairman Ben Bernanke's comments last week that the
central bank stood ready to take "substantive additional action"
to maintain growth cemented expectations for a cut of half a
percentage point in the Fed's benchmark interest rate to 3.75
percent.
Futures markets were reflecting a 50-50 chance of the Fed
slashing interest rates by three-quarters of a percentage point
between now and its Jan. 29-30 meeting, to help shield the
slumping U.S economy.
But some market players were sceptical about chances of an
inter-meeting rate cut, saying funding conditions for banks in
U.S. and European money markets have recovered since December and
may not require such emergency action.
"Speculators may be using such talk to push the dollar
lower," said a trader at a Japanese bank.
Besides bank earnings, investors will be looking to December
U.S. retail sales and inflation data later in the day. As
consumer spending makes up around two-thirds of output, any
weakness in retail sales would be viewed as negative for growth
and for the dollar.
(Additional reporting by Rika Otsuka, Editing by Michael Watson)
