WORLD FOREX: Dollar Slips Vs Euro On Continued Risk Appetite

NEW YORK -- The dollar remains weaker against the euro in early Monday trading, continuing its decline after last week's weaker-than-expected U.S. data failed to extinguish risk appetite.

The common currency also could have benefitted from the outcome of a weekend meeting of Group of Seven finance ministers. The officials did not express concern over dollar weakness in their communique, which helped set the stage for further dollar selling.

Investors are looking toward the 10 a.m. EDT release of the Institute for Supply Management's U.S. non-manufacturing numbers, which are expected to improve; if they disappoint, the dollar could see support as investors flee higher-yielding assets for the safe-haven U.S. unit.

But the currency market's response to Friday's disappointing U.S. non-farm payrolls data indicates investors might be willing to tolerate some bad news, as long as they remain assured the Federal Reserve will maintain its loose monetary policy, keeping the ultra-low interest rates that allow investors to use the buck to fund riskier investments.

The dollar gained initially Friday on the worse-than-expected U.S. jobs data, but by the end of the day, the euro had shaken off the bad news and ended stronger than the greenback.

As global trading resumed Monday, investors took the news that G-7 finance ministers did not explicitly express support for a strong dollar at their weekend meeting in Istanbul as a signal they can continue using cheap U.S. dollars to fund bets in higher-yielding currencies, such as the euro and Australian dollar.

Some individual finance ministers warned against extreme volatility in foreign exchange markets, while Japan's minister continued to try to clarify comments on whether Japan would intervene in currency markets.

Japanese Finance Minister Hirohisa Fujii on Saturday used a high-profile press conference held after the G-7 meeting to remind investors that he may intervene in the markets if he sees "excessive" yen rises.

The dollar is slightly stronger against the yen in early New York trading, as Japanese importers are buying dollars to settle their accounts Monday, traders said. Still, the dollar remains below the key Y90.00 level, and the dollar is still likely on a downward trend against the Japanese unit, analysts said.

Fujii's recasting of his initial anti-interventionist policy is gradually making investors more nervous about lifting the yen too far, too quickly, analysts said.

Some traders now speculate that if the U.S. currency drops below a January low of Y87.10, or the psychologically important Y85.00, Tokyo may sell the yen for dollars for the first time since March 2004 to curb its strength. Those levels compared with Y89.75, where the dollar traded late Friday.

"Until recently, there has been a feeling in the currency markets that Minister Fujii is tolerant of yen rises," because of a series of his previous comments decrying any attempts by governments to weaken currencies to bolster exports, said Hideaki Inoue, chief foreign-exchange manager at Mitsubishi UFJ Trust and Banking Corp. "I think he tried again to deliver a message to the markets that such views are wrong. He has clearly changed his tone."

Early Monday, the euro was at $1.4597 from $1.4572, late Friday, according to EBS via CQG. The dollar was at Y89.90 from Y89.75. The euro was at Y131.21 from Y130.79. The U.K. pound was at $1.5943 from $1.5913, while the dollar was at CHF1.0341 from CHF1.0358.

Canada Morning

The Canadian dollar is stronger Monday morning in response to broadly based weakness in the U.S. dollar.

The U.S. dollar is trading at C$1.0743 from C$1.0832 Friday.

There are no significant data releases or other domestic drivers for the Canadian currency Monday, leaving it free to take direction from broader currency market trends.

A report from BMO Capital Markets said not a great deal has changed for either the U.S./Canadian dollar or the other Canadian dollar crosses in recent trading.

"USD/CAD is still well within the ranges that has defined it recently with the momentum indicators still suggesting further sideways trade," BMO said.

"The intraday charts are a little more telling suggesting (the) pair could see a bit a move higher, but as has been the case, any decent spike higher should see longer term USD selling," it said.

The Canadian dollar also seems to be benefiting, along with its New Zealand counterpart, from the Australian dollar's rally on growing expectations for a Reserve Bank of Australia rate hike, said a report from TD Securities.

"USD/CAD hasn't yet been able to break meaningfully out of the 1.07-1.10 range that we've seen for the last several days, although the risk is that it finally pushes through the bottom end of the range now that we're past the event risk from the G-7 meeting," TD added.