Reuters: US Dollar Report: FOREX-Dollar hits 1-wk high post-Fed as Spain auction, ECB eyed

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FOREX-Dollar hits 1-wk high post-Fed as Spain auction, ECB eyed Apr 4th 2012, 08:24 Wed Apr 4, 2012 4:24am EDT * Dollar rallies broadly after Fed curbs QE speculation * Euro vulnerable on Spain auction, dovish ECB expected * Aussie tumbles on surprise trade deficit figures By Nia Williams LONDON, April 4 (Reuters) - The dollar hit a one-week high against a basket of currencies on Wednesday, lifted by minutes from the U.S. Federal Reserve's latest policy meeting that reduced expectations for further monetary stimulus and sent Treasury yields higher. Analysts said the greenback was likely to hold firm versus the euro as market players wait for the results of a Spanish bond auction and a European Central Bank meeting, at which policymakers are widely expected to keep rates on hold. The U.S. currency also rallied against the Australian dollar, which dropped to an 11-week low of US$1.0263 after Australia posted a surprise trade deficit, fuelling expectations its central bank would cut interest rates in May. The dollar index was steady on the day at 79.524, close to a one-week peak of 79.597 hit during Asian trading. "The market is moving on reduced probability of further QE in the near-term, and that's helping to support the U.S. dollar across the board," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi. "The euro is likely to adjust lower on the back of the euro zone economy underperforming, which will require the ECB to run a loose policy stance. There could potentially be a slightly more dovish stance from the ECB today, and that contrast with the Fed will provide euro/dollar with some downward momentum." Minutes published on Tuesday showed only two of the policy-setting Federal Open Market Committee's 10 voting members saw the case for additional monetary stimulus. The statement sparked a sell-off in U.S. Treasuries, with the 10-year yield last trading at 2.26 percent. Analysts said high inflation in the euro zone would prevent the ECB from easing monetary policy further, but market players also expect ECB President Mario Draghi to sound cautious about the outlook for the region's economy. Concerns about Spain's fiscal situation meant borrowing costs could climb sharply at the auction on Wednesday, with a rise in yields likely to weigh on the euro. Neighbouring Portugal offers 18-month Treasury bills for the first time since March 2011, a month before it received a bailout from the European Union and International Monetary Fund. The euro fell 0.3 percent to $1.3199, with support seen around its 100-day moving average at $1.3155. Bank of Tokyo's Hardman said the euro may test that level but was unlikely to break below the bottom end of its recent trading range roughly between $1.30 and $1.35 in the near-term. AUSSIE TUMBLES The Australian dollar, which had been under pressure after the Reserve Bank of Australia on Tuesday opened the door for a rate cut next month, fell to its lowest level since mid-January following the trade deficit figures. It was last down 0.5 percent on the day at US$1.0273, having stalled near support at $1.0261, the 50 percent retracement of the November to February rally from US$0.9664 to US$1.0857. The disappointing Australian data spurred broad selling of currencies in the Asia-Pacific region, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. "It looks like the market wants to make a try for the upside in dollar/Asia pairs and to test the downside in the Aussie as well as the Kiwi," he said. Meanwhile the yen regained some ground against the dollar after coming under heavy selling pressure following the Fed minutes and spike in U.S. Treasury yields. The greenback was last down 0.1 percent on the day at 82.71 yen, retreating from a session high of 82.94 yen. Many market players have been betting on a weaker yen trend since the Bank of Japan's unexpected easing of monetary policy in February. Speculation that the Fed could tighten its own policy faster than previously expected - raising the return for holding dollars - have also weighed on the Japanese currency. Link this Share this Digg this Email Reprints

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