By Hideyuki Sano
TOKYO, Sept 6 (Reuters) - The dollar was on the defensive onMonday after firm U.S. payrolls data last week eased marketanxiety over chances of a global slowdown and boosted demand forthe euro and growth-leveraged currencies.
The dollar looked vulnerable against the yen after failing tomaintain its gains following Friday's payrolls data, thoughcaution about Japanese intervention deterred further yen buying.
"When risk appetite comes back, both the dollar and the yenare weak. But because the dollar has low interest rates despiteU.S. twin deficits, its weakness tends to stand out even againstthe yen," said Tohru Sasaki, chief FX strategist at J.P. MorganChase Bank.
"This shows the dollar/yen is unlikely to rise whether globalmarkets are leaning towards risk taking or not," he said.
U.S. non-farm payrolls fell 54,000, a much smaller drop thanthe predicted 100,000. Private employment, considered a bettergauge of labour market health, increased 67,000.
In currency markets, rising risk appetite has tended to helpthe euro and higher-yielding currencies in recent months, asinvestors increasingly see the greenback as a fundingcurrencyfor investments on expectations of a prolonged period of nearzero rates in the U.S.
The euro changed hands at $1.2887, having risen to $1.2898after the payrolls data on Friday, its highest in two weeks.
It faces resistance at around $1.2897, a Fibonacciretracement from early July to August. More resistance is seenaround $1.2920-35, which capped the currency in mid-August.
The Australian dollar fetched $0.9150, down about 0.3 percentfrom late U.S. levels last week but still near a four-week higharound $0.9176 hit after the U.S. payrolls figures.
The Aussie needs to tackle resistance around $0.9180, itstrendline from highs in April and August, and the $0.9220-25area, its peak in early August.
Dollar/yen stood at 84.40 yen per dollar, not far from a15-year low of 83.58 marked late last month. It rose briefly to85.23 after the payroll data, but quickly erased the gains.
The yen has been bought in the past few months as investorstend to favour currencies from countries with a current accountsurplus when they want to avoid risky assets.
Japan's positive balance of payments figures mean dollarselling by Japanese exporters constantly outweighs dollar buyingby Japanese importers, capping the greenback versus the yen.
Indeed, many dealers suspect Japanese exporters still havedollars to offload ahead of their half-year finish at the end ofSeptember. Their offers are expected to be lined up above 85.00and onwards.
Dollar/yen has had a very high correlation with U.S. yieldlevels in recent months. The lower U.S. yields are, the cheaperthe dollar is against the yen, as lower yields tend to discourageinvestment in the dollar from Japan.
On Friday, however, the dollar did not make much headwayagainst the yen even as the payrolls data pushed U.S. yieldssharply higher.
Partly offseting the effect of rises in U.S. yields arerecent spikes in Japanese bond yields. The 10-year Japanesegovernment bond yields have risen 25 basis points in less thantwo weeks, which was almost as big as the rise in 10-year U.S.yields during the same period.
Data from the U.S. Commodity Futures Trading Commissionshowed on Friday that currency speculators trimmed their longpositions on the yen last week but they still have big yen longpositions.
Their long positions were cut to 49,904 from 51,069 contractsthe week before.
Some analysts say the dollar could eventually gain, however,particularly if Japanese government bond yields stop rising.
"The U.S. dollar appears to be rebounding, which could makefor a rise in dollar/yen to 85-86 yen," said Masafumi Yamamoto,chief FX strategist at Barclays.
The New Zealand dollar erased slim losses earlier to standflat at $0.7210, after a magnitude 7.1 earthquake struck thecountry's second-largest city, Christchurch, causing widespreaddamage to infrastructure. (Additional contribution from Reuters analyst Rick Lloyd inSingapore, Editing by Michael Watson and Joseph Radford)
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