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FOREX-Yen firms on heightened risk aversion, commodity currencies slip

Published 29/09/2015, 01:44 pm
© Reuters.  FOREX-Yen firms on heightened risk aversion, commodity currencies slip
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* Dollar back below 120.00 yen on risk aversion

* Worries about China weighing on risk sentiment

* Mixed messages on likely timing of Fed hike no help

By Ian Chua and Hideyuki Sano

SYDNEY/TOKYO, Sept 29 (Reuters) - The yen firmed broadly on Tuesday as a sharp selloff in global equities sent investors into safer assets and took a heavy toll on commodity currencies.

Worries about the health of the Chinese economy grew after industrial firms suffered their biggest profit drop in four years.

Mixed messages from Federal Reserve officials about the likely timing of a hike in interest rates didn't help.

The dollar fell to as low as 119.56 yen JPY= , having fallen a full yen from Monday's high of 120.60 towards the lower end of its rough trading range between 119 and 121 in the past few weeks.

It last stood at 119.72 yen, down 0.2 percent from late U.S. levels.

The MSCI's broadest gauge of world stocks .MIWD00000PUS fell to a two-year low on fear that many firms, especially those in the resource sector that had thrived on strong demand from China, might need a major downsizing to deal with lower growth.

"Everybody is looking at stock prices for trading clues. Those who usually love to look at interest rate gaps are also watching stocks," said Masatoshi Omata, senior client manager at Resona Bank.

Commodity currencies were particularly hard hit, further undermined by a tumble in base metals and oil prices.

The Australian dollar found itself below 70 U.S. cents again, falling to as low as $0.6946, within reach of 6 1/2-year low of $0.6892 hit three weeks ago. It last stood at $0.6950, down 0.5 percent on the day.

Its Canadian peer flirted with an 11-year trough of C$1.3417 hit last week, last trading at C$1.3407.

The latest comments from Fed officials clouded the outlook for a 2015 rate lift-off.

William Dudley, head of the New York Fed, and John Williams, head of the San Francisco Fed, both signaled support for a hike this year but Charles Evans, head of the Chicago Fed, called for rates to stay near zero until mid-2016.

All in all, the Fed is seen as on course towards pulling the trigger and when it finally does deliver its first hike in nearly a decade, analysts said the focus will shift to how quickly it will normalise its monetary policy.

"If Fed lift-off is imminent, there is scope for short-term volatility, and this Friday's U.S. non-farm payroll data presents some event risk, especially if it is seen to rule out, or confirm, an October hike," analysts at ANZ wrote in a note to clients.

"While we wouldn't discount this, the reality for markets is that it is more the pace, than the specific timing of hikes, that matters, with a gradualist Fed expected to cap upward pressure on Treasury yields."

With market focus on commodities and fallout from slowdown in China, the euro took a back seat, moving little against the dollar, at $1.1253 EUR= . (Editing by Kim Coghill)

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