Dollar off lows but still vulnerable as Fed meeting looms

SYDNEY Mon Oct 28, 2013 7:17pm EDT

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. REUTERS/Kim Hong-Ji

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013.

Credit: Reuters/Kim Hong-Ji

SYDNEY (Reuters) - The dollar clung onto modest overnight gains early in Asia on Tuesday, but stayed near a nine-month trough as investors bet the Federal Reserve will this week set the course for its massive stimulus program to be maintained into early next year.

The dollar index.DXY was steady at 79.344 after drifting up 0.2 percent on Monday. However, it remained not far off Friday's 78.998 - a low not seen since February 1.

A break there could pave the way for a test of this year's trough of 78.918 and then the September 2012 low of 78.601.

Traders said the market lacked conviction and moves were driven more by flows and position adjustments ahead of the Fed policy meeting over Tuesday and Wednesday rather than by fundamentals.

Indeed, investors would probably have sold the dollar if going by the latest string of data that suggested a flagging U.S. economy.

Figures on Tuesday showed U.S. manufacturing output barely rose in September and contracts to buy previously owned homes recorded their largest drop in nearly 3-1/2 years.

"The dollar's ability to gain against this backdrop likely reflects positioning, with USD shorts having built up quickly in October according to our metrics," analysts at BNP Paribas wrote in a client note.

That has left the dollar increasingly less vulnerable to negative news and with more scope to rally if data begins to beat expectations again, they added.

Traders also said it is unlikely the dollar would react too negatively should the Fed choose to wait for more evidence of how badly Washington's budget battle has hurt the U.S. economy before deciding on whether or not to scale back stimulus.

The dollar index has fallen 1.1 percent so far this month, adding to a 2.3 percent slide in September.

One of the key beneficiaries of the dollar's decline has been the euro, which as recently as Friday rose to its highest since November 2011 at $1.3833.

It last traded at $1.3788 after slipping 0.1 percent on Monday. Traders see chart resistance around $1.3800/70 with a convincing break there setting the scene for a retest of the October 2011 peak of $1.4248.

Against the yen, the dollar bought 97.66, having gained 0.3 percent, while the euro fetched 134.62 yen after Monday's 0.2 percent rise.

A standout mover in early Asian trade was the Australian dollar, which dipped about a third of a U.S. cent to a session low of $0.9535 after the head of Australia's central bank again tried to talk down the currency.

Reserve Bank of Australia governor Glenn Stevens said it was likely the Aussie dollar would fall materially in the future given the country's declining terms of trade, a shift that would be welcomed to trade-exposed sectors of the domestic economy.

The Aussie last stood at $0.9542, well off a five-month high of $0.9758 set last Wednesday.

(Editing by Shri Navaratnam)

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Comments (3)
SilverMfg wrote:
The mountain of fiat currencies and derivatives dwarfs in this the amount of real assets in this so-called Basket Of paper Currencies. The truth about the real amount of debt is buried. In the US, Real Family Income is down, Federal Revenues will continue to go down.
The only thing rising is massive debt and paper money.
Reuters was absolutely wrong that QE would or could possibly taper last quarter. Now Reuters is absolutely wrong that QE could possibly stay the same. It is more likely that QE must doubling next Feb 2014 when the US Debt Ceiling comes back into focus.
When will the Reuters show just a extremely basic chart that vaguely explains how it is even mathematically possible to pay off the US Debt? Reuters can show a chart for Business, so why can’t it show a chart about the revenue, vs. Operating expenses, vs. the Debt?
Please show us a chart, show us the numbers.

Oct 27, 2013 10:53pm EDT  --  Report as abuse
rustydud wrote:
Hey Silver,
I agree with you and have had the same opinion over the past several years after I got out of college.
One thing politicians don’t want to acknowledge is math. Math does not lie. They like to speak in generalities but when it comes to proving what they are trying to sell they won’t prove it with math. Same thing Reuters is doing here.
I agree, Yellen will increase QE. Our economy is on life-support and if they cut QE the economy will die. They must up the ante to prevent interest rates from going up and wiping the economy out that they built on a foundation of balsa wood. During the next crisis you will not see Reuters pointing the finger at the Fed for causing it; rather it will point the finger at other entities.

Oct 28, 2013 9:20am EDT  --  Report as abuse
LouiseOB wrote:
Great comments Silver and Rusty.

Yes you are right, when you look seriously at the numbers you realise that America is built on a house of sand. Its all smokes and mirrors.

Those outside of the US know that America is totally broken and unfixable. This is one of the reasons why everyone is doing currency swap deals with the Chinese. Occasionally someone lets a comment slip only to be told by an American official that they should not ‘bet against Uncle Sam’ and that America will be a major military power in the world for the next century.

Only Americans are drinking the Kool-Aid, the rest of us are getting ready for when America ends its reign.

Oct 29, 2013 1:46am EDT  --  Report as abuse
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