* USD bounces on short-covering ahead of payrolls test
* Commodity currencies in demand on global growth hopes
* Kiwi takes beating after unemployment rate jumps
By Rika Otsuka
TOKYO, Aug 5 (Reuters) - The dollar steadied on Thursday
after it enjoyed a rare rally the previous day when U.S. data
beat expectations and sparked a bout of short-covering, although
the overall mood remains bearish ahead of a key payrolls report.
Against the yen, the dollar was down 0.1 percent on the day
at 86.19 yen <JPY=>, having bounced from an eight-month low of
85.32 yen hit on Wednesday.
Traders said the greenback's ability to hold above the
psychologically and technically key 85 yen level lightened the
risk of dollar/yen dropping to a 15-year low below the November
trough at 84.82 yen, at least until the monthly U.S. jobs data,
which is seen setting the dollar's near-term direction.
A decline beyond the November milestone could open the way
for the greenback to slide to an all-time low below 80 yen, hit
15 years ago, traders said.
Dealers are wary that a tumble to a 15-year low would finally
prompt the Ministry of Finance into taking action on the
currency's strength, which is hurting Japanese exports, shares
and the export-dependent economy.
"Players feel they have sold the dollar a bit too much before
the U.S. jobs data, and are buying back the currency a little,"
said a senior trader at a Japanese trust bank.
But the trader said the dollar remained on a downward trend
in the longer term, weighed by persistent speculation that the
Federal Reserve may further relax its monetary policy to help the
U.S. economic recovery which is feared to be losing steam.
Also, the dollar's growing role as a carry trade funding
currency points to a further slide. []
Falling U.S. Treasury yields are also playing a part in the
dollar's weakness.
The positive correlation between U.S. and Japanese two-year
yield spreads, which have been narrowing, and the dollar/yen rate
has strengthened to its highest since the period just after the
collapse of Lehman Brothers in 2008.
Heavy Japanese buying has helped bring down Treasury yields,
bond traders said.
Data from Japan's Ministry of Finance showed on Thursday that
Japanese investors have been net buyers of overseas debt --
believed to be mostly U.S. Treasuries -- for 12 straight weeks.
Their total net buying during the period reached 11.3 trillion
yen ($131 billion) against a total net buying of 12.1 trillion
yen in the whole of 2009.
Meanwhile, Japanese investors' Treasury purchases have had
little visible impact on dollar/yen rates as big overseas debt
buyers, such as Japanese insurers, are now hedging against
volatility in exchange rates, said Sumino Kamei, senior analyst
at Bank of Tokyo-Mitsubishi UFJ.
The dollar index <.DXY> edged up 0.1 percent to 80.930,
putting it back above its 200-day moving average at 80.768.
However, it still needs to get past 81.650 to break the bear
trend of the past seven weeks, and otherwise risks a fall to its
April low of 80.031.
The euro was barely moved from late U.S. trade at $1.3159
<EUR=>, having slid from a three-month peak of $1.3262 struck on
Tuesday. Traders reported good support in the $1.3140/50 area and
more at $1.3107.
COMMODITY CURRENCIES FIRM
One standout was strength in currencies leveraged to world
growth and commodity prices, such as the Australian and Canadian
dollars, suggesting a lightening of the recent gloom over the
global outlook.
The Canadian dollar extended gains against the greenback,
while the Australian dollar dipped but hovered near a three-month
high hit the previous day.
The catalyst was an unexpected improvement in the ISM index
of the U.S. service sector which nudged up to 54.3 in July,
pointing to a faster rate of expansion. []
"So not only is the services sector -- the vast bulk of most
modern economies -- expanding, it is doing so at a faster pace,"
said Adam Carr, a senior economist at broker ICAP.
That helped to counter talk that the Fed might take further
steps into quantitative easing at its policy meeting next week
and pulled Treasury yields up from record lows [].
"Commodities are telling us that this global recovery has
reasonable momentum," said Carr, noting iron ore prices had risen
around 20 percent in the past month, while copper was up 16
percent and wheat up 40 percent.
That helped to lift the Australian dollar to a three-month
high at $0.9184 <AUD=D4> on Wednesday, while the U.S. dollar slid
the previous day to its lowest against the Canadian currency in
six weeks at C$1.0163 <CAD=D4>.
On Thursday, the Aussie dipped 0.1 percent to $0.9161. The
U.S. dollar was down 0.1 percent at C$1.0165.
Bucking the trend was the New Zealand dollar, which took a
spill early on Thursday after local jobless data proved far
weaker than expected, prompting markets to scale back
expectations for more interest rate rises this year.
[]
The currency fell 0.7 percent to $0.7300 <NZD=D4>.
The European Central Bank and the Bank of England hold
meetings later on Thursday, although no policy changes are
expected. []
(Additional reporting by Wayne Cole in Sydney and Hideyuki Sano
in Tokyo; Editing by Joseph Radford)
