As traders took stock of last week’s rise in risk aversion on deepening concern about a possible credit crunch and a deteriorating U.S. housing market, high-yielding currencies like the Australian and New Zealand dollars lost ground on Monday.

But the U.S. dollar eased against European currencies, while the yen broadly shrugged off a crushing defeat for Japanese Prime Minister Shinzo Abe’s ruling camp in upper house elections on Sunday that threatened policy gridlock, with the conservative leader vowing to stay in his post.

There are no major economic data releases due on Monday, leaving investors to focus on data later in the week, including U.S. non-farm payrolls, and on how credit market gyrations affect stocks, bonds and currencies.

“All eyes are on credit and equity markets today to see whether or not the risk-reduction moves will continue this week,” said Niels From, currency strategist at Dresdner Kleinwort in Frankfurt.

”From an FX perspective, we’ll be looking at how the risk perception develops.”

At 0730 GMT the dollar was down 0.1 percent on the day against a basket of six major currencies at 80.990, having gained around 1 percent last week, its biggest weekly gain in six months.

The dollar was up 0.1 percent against the yen at 118.75 yen , bouncing back from a three-month low of 118.05 yen earlier in Asian trading, according to Reuters prices.

The euro was up 0.4 percent against the yen at 162.27 yen, also rallying back from a three-month low earlier on Monday of 160.67 yen, according to Reuters data.

The euro was up 0.2 percent against the dollar at $1.3660, while sterling was up 0.1 percent at $2.0258.

Edgy markets

The New Zealand dollar was down 0.3 percent against the greenback at $0.7621 and the Australian dollar pared earlier losses to stand slightly lower at $0.8500.

As risk reduction rocked financial markets last week, the Aussie dollar posted its biggest weekly decline against the U.S. dollar in 2-1/2 years, and the kiwi dollar its biggest weekly slide in 3 years.

Equity, emerging and credit markets suffered heavy losses last week, while top-rated government bonds rallied on a wave of safe-haven buying.

Risk aversion indices such as those compiled by UBS and RBC Capital Markets rose to their highest levels in years, while currency options markets showed steep increases in implied volatilities.

European credit markets remained on edge early on Monday. The iTraxx Crossover index, made up mostly of junk-rated credits, widened further to 465 basis points in early trade before coming back in to 447 basis points.

While credit worries will dominate sentiment, there’s a heavy data flow this week too. July non-farm payrolls, global purchasing managers’ indices, the Chicago PMI and interest rate decisions from the European Central Bank and Bank of England could all move currencies.

The ECB and BoE are expected to keep rates on hold at 4 percent and 5.75 percent, respectively, although both are still seen raising rates at least once more this year.

“A deteriorating growth outlook is perhaps the most serious risk to the risk appetite environment and this is more likely after last week’s extremely poor U.S. housing data, so this week’s regional PMIs and non-farm payrolls report will be important,” wrote RBS strategists in a client note on Monday.