FOREX-Dollar edges up vs yen but caution reigns ahead of jobs data

Wed Jan 8, 2014 1:37am EST

* ADP weekly data, Fed minutes in focus, with payrolls report on Friday

* Dollar index hits one-month high after upbeat U.S. trade report

* Canadian dollar sold off on renewed worries about economy

By Lisa Twaronite and Ian Chua

TOKYO/SYDNEY, Jan 8 (Reuters) - Upbeat U.S. trade data helped the dollar edge higher against the yen and touch a one-month high against a basket of major currencies in Asia on Wednesday, even as caution ahead of this week's key U.S. employment report kept gains in check.

U.S. jobs data on Friday is expected to show the world's biggest economy created 196,000 jobs in December, according to analysts polled by Reuters.

A weaker reading could take some of the wind out of the dollar's sails, while a stronger-than-expected reading could fuel market speculation that the Federal Reserve might speed up its plan to scale back its bond-buying stimulus. That could undermine U.S. Treasuries and bolster their yields, which would be positive for the U.S. dollar.

"Investors don't want to move a lot ahead of the jobs data," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"Everyone wants to check the U.S. employment situation," he said, adding that investors will also focus on the weekly data from private payroll firm ADP, which will be released later on Wednesday.

The minutes of the U.S. Federal Reserve's December policy meeting will also be released later in the session.

Central bank policymakers decided at that meeting that they would begin to pare stimulus and cut asset purchases by $10 billion to $75 billion a month. The minutes could hint at the timing and pace of any further reductions to the Fed's stimulus.

Fed officials have been careful to downplay the possibility of accelerated stimulus tapering. Boston Fed President Eric Rosengren and San Francisco Fed President John Williams said on Tuesday they expected the U.S. central bank to reduce stimulus at a steady pace.

Against the yen, the greenback rose about 0.4 percent to 104.98, pulling further away from a two-week low of 103.88 set on Monday and back towards last week's five-year high of 105.45 yen.

The dollar index was up about 0.1 percent on the day at 80.871 after rising as far as 80.941, just shy of Tuesday's 80.946, which was its highest since early December. The dollar gained on Tuesday after the United States posted its smallest trade deficit in four years as exports hit a record high.

CANADIAN DOLLAR

By contrast, investors dumped the Canadian dollar on news that activity by purchasing managers nosedived unexpectedly in December, while the country's trade deficit was far larger than forecast.

That helped the greenback surge as high as C$1.0810 , the highest since May 2010. It was last up about 0.3 percent at C$1.0799.

The dollar gave up its upper hand against the euro, though, with the European unit strengthening about 0.1 percent to $1.3629.

The common currency firmed against the yen as well, rising 0.5 percent to 143.05 yen, away from a three-week trough of 141.50 plumbed on Monday and back towards its five-year peak of 145.67 yen set on Dec. 27.

The European Central Bank meets on Thursday for the first time in 2014, but is likely to do no more than warn of its readiness to act in the future despite yet another surprise fall in euro zone inflation.

Data on Tuesday showed annual euro zone inflation dipped to 0.8 percent in December from 0.9 percent in November, while the core reading hit a record low of 0.7 percent, staying well under the ECB's target of just below 2 percent.

The firmer greenback briefly knocked the Australian dollar below 89 U.S. cents late on Tuesday, although good buying interest there helped lift it back to $0.8925.

The Aussie dropped more than 14 percent against the U.S. dollar last year, partly due to persistent jawboning by Australia's central bank, which has made clear it wants a weaker currency to drive the economy. It has already cut interest rates to a record low 2.5 percent.

Meanwhile, China's yuan traded outside the country's borders rose to a record high on seasonal yuan demand at the beginning of the year, as well as bets on further currency appreciation.

The yuan rose 2.9 percent against the dollar in 2013 and traders expect more gains this year after the country's central bank promised to tone down its interventionist policies in the foreign exchange markets.

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