The dollar slipped versus the yen at the start of a new quarter on Wednesday, as a soft reading on Japanese business sentiment dented Tokyo shares and helped bolster the safe haven yen.

The Australian dollar gained a lift from a better-than expected reading of Chinese factory activity and that added to the broadly weak tone of the greenback, traders said.

“Dollar/yen has led this move today and I think it’s basically trading off the back end of the Nikkei,’’ said Stephen Innes, senior trader for FX broker Oanda in Singapore.

The dollar fell 0.5 per cent to 119.56 yen, down from Tuesday’s one-week high of 120.37 yen.

Nikkei share average

Japan’s benchmark Nikkei share average was last down about 1 per cent, as investors booked profits on the first day of Japanese financial year and after soft reading on the Bank of Japan’s tankan business sentiment survey.

Weakness in Japanese equities can dent risk sentiment and lend support to the yen.

“Any sort of negative sign, when the market gets over-extended like it is right now, you’re going to see some type of profit-taking or pullback,’’ Innes said, referring to long positions in the US dollar.

China’s factory survey

The Australian dollar rose 0.4 per cent to $0.7636, having clawed up to as high as $0.7664 after China’s official Purchasing Managers’ Index (PMI) showed that activity in China’s factory survey unexpectedly picked up in March.

The Australian dollar is sensitive to Chinese data due to Australia’s large trade exposure to China.

The better-than-expected China PMI helped lift the Australian dollar and likely triggered some paring back of bullish bets on the US dollar, said Jesper Bargmann, head of trading for Nordea Bank in Singapore.

“Market will have been a little bit of long of (US) dollars, I assume, so we're just seeing a little squeeze on the back of that number,’’ Bargmann said.

Euro edges up

The euro rose 0.5 per cent to $1.0789, getting some respite after suffering its worst quarterly performance ever in the first quarter.

The euro slid 11 per cent against the dollar in January-March, its biggest quarterly drop since its 1999 launch, due to the European Central Bank launching its quantitative easing programme, with the US Federal Reserve is expected to start raising interest rates this year.

The euro will probably remain under pressure this quarter, although it is unlikely to fall as fast as it did in the previous three months, said Nordea Bank’s Bargmann.

“I think the theme is kind of intact, until we start seeing the first hike out of the US We still have the Greek situation looming, so overall there will still be pressure on the euro,’’ he said.

“Against the dollar we found a very important support level around $1.04/$1.05. I think it will be challenged again and I think we may test around parity,’’ Bargmann added.

The euro has regained some ground in the past couple of weeks after setting a 12-year low of $1.04570 in mid-March.

Later on Wednesday, the ADP National Employment Report will provide a picture of the US private sector employment situation and could offer some clues to Friday’s non-farm payroll report.

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