* Dollar edges up after previous day’s slide
* USD’s drop on Monday seen as profit-taking
* Some caution after build-up in long dollar bets (Updates prices, adds comments)
By Masayuki Kitano and Ian Chua
SINGAPORE/SYDNEY, Oct 7 (Reuters) – The dollar edged higher on Tuesday, showing resilience in the wake of the previous day’s slide, which was seen as a temporary setback for dollar bulls.
The dollar rose 0.3 percent against the yen to 109.11 yen . On Monday, the dollar had shed 0.9 percent versus the yen – its biggest one-day drop since early April – and backed away from a six-year high of 110.09 yen set last week.
The yen’s immediate fortunes now hinge on the outcome of the Bank of Japan’s policy review due later in the day, followed by a media briefing by the BOJ governor.
The BOJ is sure to maintain its massive monetary stimulus, but may acknowledge a more challenging outlook following signs that Japan’s economy was hit harder than expected by a sales tax increase six months ago.
Traders said the dollar’s drop on Monday, in which the greenback reversed almost all of its U.S. payrolls-inspired gains, was mostly due to profit-taking as U.S. Treasury yields remained stubbornly low.
“I think it is just a correction of short-term positioning,” said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
“Overall the U.S. dollar is still in a strong uptrend,” Halley said, adding that the dollar’s rise in Asian trade on Tuesday seemed to be driven mainly by short-term momentum players.
The Australian dollar touched its intraday lows after the Reserve Bank of Australia said the Australian dollar remains high by historical standards.
The RBA kept interest rates unchanged at a record low of 2.5 percent, as had been widely expected, and said it was prudent to have a period of stability for interest rates.
The Aussie dollar touched a low of $0.8727 after the RBA’s post-meeting statement. It later pared some of its losses and was last down 0.2 percent on the day at $0.8748.
Underscoring the U.S. dollar’s firm tone on Tuesday, the euro slipped 0.3 percent to $1.2620, giving back some of the gains made on Monday when the euro rose 1.1 percent. The euro has pulled up from a two-year low of $1.2500 set on Friday.
Against a basket of major currencies, the dollar last traded at 86.009, up 0.1 percent on the day but still below Friday’s four-year high of 86.746.
“Since there are various signs of a build-up in long dollar positions, I think there is some caution toward the possibility of corrective pull-backs,” said a trader for a Japanese bank in Singapore.
“But I think the general sense is that the direction it is heading is higher,” he said, referring to the dollar.
The dollar has been buoyed by market expectations that the Federal Reserve would be well ahead of the European Central Bank and the Bank of Japan in raising interest rates.
While that broad backdrop remains intact, there appears to be some mismatch in expectations between dollar bulls and interest rate markets, which have continued to push out the risk of an interest rate hike by the U.S. Federal Reserve further into 2015. June Fed funds futures have recovered from Friday’s fall to be back near contract highs. (Editing by Richard Borsuk)