Yen gets boost from souring risk sentiment, crude slide hits loonie

By Shinichi Saoshiro

TOKYO (Reuters) - The yen was supported against the dollar on Tuesday as soured risk sentiment favoured the safe haven Japanese currency, while the Canadian dollar struggled near an 11-year low against the greenback as crude oil prices resumed their slide.

The dollar, which has lost some steam against its Japanese counterpart after the Federal Reserve hiked interest rates this month, dipped 0.1 percent to 120.26 yen.

It edged closer to a two-month low of 120.05 plumbed last week as weaker oil sapped investor risk appetite. The dollar was on track to eke out a 0.5 percent gain against the yen this year.

Prices of both Brent and U.S. crude remained under pressure on Tuesday after dropping more than 3 percent overnight, reversing a brief rebound as concerns over oversupply returned. Brent slipped back towards an 11-year low.

The yen was expected to retain its support into the new year if oil prices continued declining.

"Weak oil prices can push down dollar/yen by continuing to negatively impact high yield bonds, which in turn will worsen overall risk sentiment," said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.

"Under such conditions, the other yen crosses should also retain support going forward after gaining steadily since the summer," he said.

The euro was on course to lose about 9 percent versus the yen in 2015 and the Australian dollar was headed for a 10 percent loss against the Japanese currency.

Tumbling commodity prices have rattled the U.S. high yield bond market by increasing fears of defaults by companies tied to moves in oil. The iShares iBoxx high yield corporate bond ETF dropped to a four-year low this month.

The euro gained 0.1 percent to $1.0988. Trading has thinned as participants have closed out their positions before the year's end, confining the common currency to a narrow $1.0944-1.1000 range over the past three sessions.

The common currency has dropped 9 percent in 2015, sliding to a 12-year low of $1.0457 in March.

A debt crisis in Greece and a divergence in monetary policies of the Fed and the European Central Bank were some of the factors that pushed down the euro this year, although it is yet to reach parity with the dollar as some had forecast.

The Canadian dollar edged up slightly to C$1.3876 to the greenback after losing 0.7 percent overnight, when it went as low as C$1.3915. The loonie still remained in striking distance of an 11-year low of C$1.4003 against the dollar hit earlier this month.

The Australian dollar, another commodity currency, stood little changed at $0.7258 after touching a five-day low of $0.7246.

The Aussie was enroute for a loss of nearly 13 percent in 2015, hit by factors including central bank monetary easing earlier in the year, sliding commodities and fears of an economic slowdown in China, Australia's key trading partner.

The New Zealand dollar stepped up to a two-month high of $0.6866. The allure of relatively high New Zealand yields have recently shored up the kiwi, though it was still headed for a 12 percent drop versus the greenback in 2015.

(Editing by Kim Coghill)