FOREX-Dollar hamstrung by data, China optimism buoys Aussie

Sun Feb 16, 2014 6:22pm EST

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By Ian Chua

SYDNEY, Feb 17 (Reuters) - The U.S. dollar languished at six-week lows against a basket of major currencies on Monday, still struggling to get over yet more disappointing U.S. economic news that stood in contrast to better data out of the euro zone and China.

The dollar index traded at 80.100, having slumped to 80.065 -- a low not seen since Jan. 1. Traders said Friday's close below 80.153, the Jan. 24 trough, could pave the way for further downside.

The euro touched a three-week high of $1.3717, while sterling scaled a four-year peak of $1.6776.

Data on Friday showed both Germany and France grew slightly faster than expected in the fourth quarter, pushing the euro zone's recovery up a gear.

U.S. manufacturing output, by contrast, unexpectedly fell in January but that outcome was again blamed on bad weather.

The run of soft U.S. data seemed to have affected the market's expectation regarding the Federal Reserve's tapering path, analysts at Barclays Capital wrote in a note to clients.

"The market could continue to price in a small possibility of Fed halting the tapering while the U.S. data remains soft," they said.

"But we think the Fed will likely look through the near-term softness in the data and continue to reduce asset purchases by $10 billion in March, as suggested by Fed Chair Yellen's remarks during her testimony to the Congress, which should be USD supportive."

Latest data showed currency speculators have indeed pared bets in favour of the U.S. dollar in the week ended Feb. 11.

Still, it was the 15th straight week in which speculators held net long positions in the greenback, reflecting a wider belief that the Fed will probably continue to wind back its extraordinary policy stimulus this year.

Commodity currencies such as the Australian dollar were also in favour after Chinese lending data on Saturday suggested the world's second biggest economy may not be cooling as much as feared.

Analysts though warned the data could be distorted by the Lunar New Year holidays in January. China is the biggest export market for both Australia and New Zealand.

The Australian dollar hit a fresh one-month high of $0.9070 , before relinquishing a bit of ground to last stand at $0.9050.

It's New Zealand counterpart also scaled a one-month peak of $0.8396 but quickly retreated to $0.8364 after local retail sales data missed lofty forecasts.

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