FOREX-Dollar inches up as Fed, US GDP loom; Aussie slips

Wed Jul 31, 2013 12:01am EDT

Related Topics

* Dollar index tad firmer, hovers above five-week lows

* Aussie under pressure after previous day's RBA comments

* Fed policy decision, U.S. Q2 GDP due later on Wednesday

By Masayuki Kitano and Ian Chua

SINGAPORE/SYDNEY, July 31 (Reuters) - The dollar inched up versus a basket of currencies on Wednesday as investors trod cautiously ahead of a Federal Reserve policy review that could see the central bank drive home a dovish message.

The dollar index, which tracks the greenback's performance against a basket of major currencies, inched up 0.1 percent to 81.877.

Investors had knocked the dollar index down to a five-week trough of 81.499 earlier this week as they bet the Fed would seek to reassure markets that interest rates would stay low for a long time, even if it started scaling back stimulus this year.

The Fed will release a policy statement at 1800 GMT, but there will be no news conference by Chairman Ben Bernanke.

Some analysts say the Fed's policy statement may reiterate that any reduction to the central bank's purchases of $85 billion per month in U.S. Treasuries and mortgage-backed securities will hinge on the economic outlook.

The Fed is seen likely to start tapering its bond-buying later this year, possibly as early as September.

"Our economists expect the statement to emphasise the data-contingent nature of the plan rather than the provisional mid-2014 time frame for ending purchases that was discussed at the press conference," analysts at BNP Paribas wrote in a note.

"A data-dependent tapering programme is likely to be of limited benefit for the dollar in the short-term, particularly because U.S. data has been quite mixed at best, a pattern which is likely to continue in the days ahead."

U.S. gross domestic product (GDP) data due later on Wednesday is expected to show growth slowed to an annualised rate of just 1.0 percent in the second quarter, hardly a sign of a runaway recovery. The influential ISM survey is due out Thursday and payrolls the day after.

The euro eased 0.1 percent to $1.3255, down from a six-week high near $1.3302 set on Tuesday on trading platform EBS.

The dollar held steady near 98.08 yen, staying above a one-month low of 97.635 yen set on Monday.

The dollar's reaction to the Fed's post-meeting statement may turn out to be limited, said Gareth Berry, G10 FX strategist for UBS in Singapore, adding that the Fed will probably keep its options open on the issue of when it may start tapering its bond buying.

"We're not expecting any change to the text, nothing material anyway," he said.

The likely outcome is "very much a wait-and-see kind of statement where they reiterate previous messages that they're watching data like the rest of us," Berry said.

A combination of U.S. GDP data and the ADP National Employment Report due later on Wednesday as well as month-end flows could end up having more impact on the dollar, he added.

The ADP survey of private sector hiring comes ahead of the U.S. nonfarm payrolls data due on Friday.

The Australian dollar remained under pressure, with market players seeing a strong chance of an interest rate cut next week following dovish comments from the head of the Reserve Bank of Australia on Tuesday.

The Australian dollar fell 0.4 percent to $0.9029, not far from a 34-month trough just below 90 U.S. cents struck a few weeks ago.

The Aussie dollar also retreated against the euro and hit a three-year low of A$1.4711 per euro earlier on Wednesday.

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