* Greenback aided by talk Fed easing could be in small steps
* Yen capped by speculation BOJ could ease next week
* Limited financial half-year end flows in dollar/yen
* Euro dragged by Moody's downgrade of Anglo Irish Bank
By Hideyuki Sano
TOKYO, Sept 28 (Reuters) - The struggling dollar got a
reprieve on Tuesday, helped by a report that the Federal Reserve
was weighing a more open-ended, smaller-scale bond buying
programme compared with 2009.
Soft U.S. stocks encouraged profit-taking in riskier
currencies, while a report that the Bank of Japan will consider
loosening policy also helped the dollar by hampering the yen.
Still, many traders think the greenback is in a downtrend
given the speculation that any future QE by the U.S. Federal
Reserve, even in a modest form, would probably still be more
aggressive than other central banks.
"Currencies like the euro and the Australian dollar have
rallied so much so far this month that their momentum is waning a
little bit. But that's just a short-term thing," said a trader at
a Japanese brokerage house.
The Wall Street Journal reported that the Fed would announce
purchases of a much smaller amount of bonds for a brief period
and leave open the question of whether it would do more, a
decision that would turn on how the economy was doing.
[]
The dollar index <.DXY> <=USD> managed to keep some distance
from a seven-month trough of 79.19 hit on Monday, standing at
79.40, flat on the day.
The dollar was hemmed in a tight range against the yen,
drawing marginal support from the Nikkei business daily's report
that the BOJ may further ease policy at its Oct 4-5 meeting if it
judges growth to be under threat.
That weighed on the yen as it revived talk the central bank
could undertake more quantitative easing next week by injecting
longer-term funds into the money market, or opt for the more
controversial move of buying more Japanese government bonds.
[]
In the background was continued investor anxiety that Tokyo
may intervene if the yen gets up towards 82 per dollar.
"If the BOJ eases its policy and simultaneously intervenes in
the currency market, that could be quite effective (in pushing
down the yen)," said a trader at a Japanese bank.
The dollar was little changed from its New York's close at
84.25 <JPY=> with support at 84.05, the 61.8 percent Fibonacci
retracement of its rise in the hours before and after Tokyo's
intervention on Sept. 15.
FINANCIAL HALF-YEAR
Some traders expect more selling in the greenback from
Japanese exporters towards the end of Japanese financial
half-year end on Sept. 30, though so far such seasonal flows have
been limited.
There are said to be some stop-loss orders around 83.80 yen,
though deep falls beyond that level are unlikely given concerns
about Japanese intervention, traders said.
BOJ money market data added to the evidence that Japan did
not intervene on Friday, when the dollar/yen briefly jumped more
than one yen, highlighting how nervous traders are about
intervention. []
Still, all the talk of QE by the Fed, even if in modest form,
points to overriding weakness in the U.S. dollar.
"Very few people forecast contraction in the U.S. economy in
the near future but the Fed is ready to act. The Fed is clearly
the most dovish among major central banks, while the Bank of
Japan and the European Central Bank are more sceptical about the
benefit of monetary easing," said a trader at a major Japanese
bank.
The euro, while not beset by QE fears, was no less vulnerable
to fiscal debt woes in Europe.
It was little changed at $1.3465 <EUR=>, away from Monday's
five-month peak of $1.3507, after Moody's downgrade of the
lower-grade debt at Anglo Irish Bank led investors to sell into
the common currency's recent gains.
The euro's retreat meant it had failed the first test of
resistance at $1.3511, a 50 percent Fibonacci retracement of its
fall from $1.5145 last November to its June low around $1.1876.
The Swiss franc <CHF=>, on the other hand, flew at 0.9842 per
dollar, in sight of a 30-month peak of 0.9776 hit last week.
The Australian dollar <AUD=>, another clear winner, was
strong at $0.9601. Many believed it could retest its record peak
of $0.9851 in coming weeks before charging to parity.
"The tendency towards more QE will reinforce the rising trend
in non-QE currencies," said Greg Gibbs, an analyst at RBS in
Sydney.
"It will reinforce the rising trends in commodities,
especially gold and food staples, and commodity, Scandinavian and
Asian currencies, and any currency that has less need of
quantitative easing, such as the Swiss franc."
(Additional reporting by Koh Gui Qing and John Noonan at IFR in
Sydney and Masayuki Kitano in Tokyo; Editing by Joseph Radford)
