FOREX-Dollar near 7-week low on Fed uncertainty
* Dollar fragile after 5 straight losing sessions
* Traders preoccupied with uncertainty on Fed tapering
* Signs of improvement in Europe, China undermines dollar
* Aussie weathers RBA statement, eyes on China data
By Hideyuki Sano
TOKYO, Aug 9 (Reuters) - The dollar licked its wounds on Friday, holding near a seven-week low against a basket of currencies, following losses over five straight days sparked by U.S. payrolls data which fell short of market expectations.
Traders say the dollar's precipitous fall reflected uncertainty over how soon the Federal Reserve will start reducing its stimulus, as well as signs of improvement in other economies, such as China and Europe.
The dollar index against a basket of six major currencies hit a low of 80.868 on Thursday and last stood at 81.04 , little changed on the day but within sight of its June low of 80.498.
"Essentially, the dollar has been falling after the payrolls numbers were weaker than expected. But I think the dollar is just testing the lower end of its range rather than entering a fresh downtrend. Sentiment may change if upcoming U.S. data, such as retail sales, shows strength," said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.
Fed policymakers have suggested in recent weeks that it could start to scale back its monthly bond buying as soon as September, but this will depend on further improvement in the job market.
Thursday's weekly jobless claims data suggested the U.S. job market remains on the mend.
Yet that alone was not enough to convince investors that the Fed will trim its bond buying of $85 billion a month next month after data last Friday showed U.S. employers slowed their pace of hiring in July.
The euro hit a seven week high of $1.3401 on Thursday and last stood at $1.3380, not far from its June peak of $1.34175. The currency drew strength from an above-forecast German trade surplus and Wednesday's much stronger-than-expected German factory data.
The Australian dollar ticked up even after the country's central bank trimmed its economic growth outlook and said a further fall in the local currency would help the economy rebalance away from mining investment.
The Aussie rose 0.2 percent to $0.9120, extending its 1.2 percent gain the previous day following stronger-than-expected Chinese data.
More data from China is due later in the day, including industrial output and retail sales. Inflation data released earlier in the day was in line with market expectations, showing stabilising inflation.
Against the yen, the U.S. dollar bounced back overnight, in part helped by relief from Chinese data, though traders said the move probably had more to do with a quirk in holiday-thinned trade rather than economic fundamentals.
"Although the dollar rebounded against the yen yesterday, it doesn't feel like it has bottomed out. The chart looks still very weak and I suspect there's chance the dollar will test 95 yen in the near future," said a trader at a Japanese bank.
The dollar traded at 96.61 yen, slightly below late U.S. levels, though it held some distance from a seven-week low of 95.81 yen hit on Thursday.
"A fall in risk/reversal spreads in the option market implies there are strong demand for dollar puts by short-term players. In terms of technicals, the dollar/yen has not recovered even to its five-day average," Osamu Takashima, chief FX strategist at Citigroup Securities in Tokyo said in report.
The five-day average stood at 97.14 at the moment.
A potential target in the near term would be a 76.4 percent retracement of its rally from June to early July at 95.59, he added.
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