FOREX-Dollar edges down, Aussie steady ahead of inflation data

Tue Jul 23, 2013 3:05am EDT

* Aussie steadies as investors await inflation data on
Wednesday
    * Dollar briefly drops to one-week low vs. yen, pares losses
    * Drop in Portuguese yields helps bolster euro

    By Lisa Twaronite
    TOKYO, July 23 (Reuters) - The dollar edged lower in Asia on
Tuesday as the slide in U.S. Treasury yields over the past two
weeks gave investors less incentive to buy the greenback, while
the Australian dollar pared gains ahead of domestic inflation
data.
    A low inflation reading on Wednesday would give fodder to
those expecting the Reserve Bank of Australia (RBA) to cut rates
next month, which would weigh on the currency.
    Sue Trinh, senior currency strategist at RBC Capital Markets
in Hong Kong, said ihat if inflation is near the lower end of
the central bank's target range, "it shouldn't really be an
obstacle to further rate cuts by the RBA if they're so
inclined."
    Swap markets see a two-in-three chance of an interest rate
cut next month, while interbank futures have a
25-basis-point easing to a record low of 2.5 percent fully
priced in by October.
    Also on Wednesday, HSBC will release its flash PMI for
China. 
    The Australian dollar was steady against its U.S.
counterpart at $0.9253, after earlier rising to a
one-week high of $0.9284. It faces stiff resistance in the
$0.9292 to $0.9306 area, but remains well above a three-year low
of $0.8998 set on July 12.
    Against the yen, the U.S. dollar dipped to a one-week low of
99.13 yen in early trading but then quickly pared losses
to buy 99.51 yen, down about 0.1 percent from late U.S. trade.
    The recent fall in U.S. yields came after top Federal
Reserve officials, including Chairman Ben Bernanke, stressed
that the timing of any reduction to the central bank's $85
billion in monthly purchases would depend on economic data.
    Soft U.S. housing data on Tuesday led to dollar selling and
added to the perception that the Fed has no reason to rush to
trim its stimulus programme.
    "There are fewer fears of an imminent Fed tapering, and
yields on U.S. Treasuries are off their recent highs," said
Masashi Murata, senior currency strategist at Brown Brothers
Harriman in Tokyo.
    "With the Japanese election out of the way, resulting in a
confirmed victory for Prime Minister Abe, there is no particular
reason to sell yen right now. So we'll be looking at U.S. data
for near-term directional signals," he added.
    Japanese Prime Minister Shinzo Abe's bloc won a widely
expected victory in elections for the parliament's upper house
on Sunday.
    While the Fed is eventually expected to taper its stimulus,
the Bank of Japan is committed to keeping its ultra-easy
monetary stance as it aims for consumer inflation of 2 percent
within two years, even against a backdrop of an improving
domestic economy. 
    On Tuesday, the Japanese government raised its view on the
economy for a third straight month and said deflation was
abating as a result of the nation's expansionary policy mix of
monetary easing and generous spending. 
    The assessment is in line with the BOJ's view that the
world's third-largest economy is finally recovering, boosted by
the effects of a weakening yen and its massive monetary
stimulus. 
     Separately, an annual government economic report said on
Tuesday Japan's economy is showing some signs of bouncing back
from prolonged deflation as a result of Abe's monetary easing
and budget spending to revive the economy. 
     
     
    The euro was up about 0.1 percent at $1.3191, after
touching a one-month high of $1.3218 in the previous session.
The dollar index, which tracks the greenback against a
basket of major rivals, fell slightly to 82.190, holding above a
one-month low of 82.047 hit overnight.
    The euro won some respite from political worries after
Portuguese President Anibal Cavaco Silva said the current
government will stay in office to keep an international bailout
on track. That led the spread of Portuguese bonds over German
bunds to narrow.
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