FOREX-Dollar edges up as market awaits Fed meeting, Iraq news

Tue Jun 17, 2014 12:11am EDT

Related Topics

* Caution ahead of Fed meeting, concerns about impact of Iraqi insurgency

* Aussie drops after more dovish-than-expected RBA minutes

* Brighter U.S. data contrasts with IMF's downbeat assessment

* Sterling steadies close to 5-year highs; BOE minutes awaited

By Lisa Twaronite

TOKYO, June 17 (Reuters) - The dollar fluttered higher in Asia on Tuesday, but was kept to a narrow range by caution ahead of this week's U.S. Federal Reserve meeting and concern about escalating violence in Iraq.

By contrast, the Australian dollar was one of the session's biggest movers, slipping after minutes of the central Reserve Bank of Australia's June 3 meeting revealed that policymakers were unsure if their stimulus would be sufficient.

The Australian dollar AUD=D4 slipped more than a quarter of U.S. cent to a session low of $0.9354, and was last down 0.4 percent at $0.9358.

"The Aussie came off after the RBA, as these comments are quite dovish," said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.

"They're obviously trying to talk down the Aussie, they're trying to prepare for maybe tougher times ahead."

Against its Japanese counterpart, the dollar ticked up about 0.1 percent to 101.98 yen, holding well above a two-week low of 101.60 yen marked on Thursday.

The euro also added about 0.1 percent to 138.31 yen , remaining above its from a four-month low of 137.70 yen touched overnight. Against the dollar, the common currency inched about 0.1 percent lower to $1.3564.

The dollar index, which tracks the greenback against a basket of major rivals, edged up about 0.1 percent to 80.512.

U.S. Treasury yields also stuck close to their recent ranges ahead of the two-day Fed meeting that will begin later in the session, with the benchmark 10-year yield at 2.591 percent, slightly down from Monday's U.S. close of 2.599 percent.

The U.S. central bank is expected to announce a further reduction in its monthly bond purchasing program, but most market participants do not expect an interest rate hike until mid-2015.

The International Monetary Fund cut its forecast for U.S. growth on Monday and predicted the economy would not reach full employment until the end of 2017, which would suggest interest rates might be held near zero for longer than financial markets expect.

But data on Monday painted an upbeat picture of the U.S. economy in the present quarter following weak start to the year due to a harsh winter. U.S. manufacturing output rose in May and June factory activity in New York state accelerated sharply, while confidence among homebuilders perked up this month.

Growth estimates for the April-June quarter range as high as 4 percent, though the recently rising tensions in Iraq have bolstered crude oil prices and raised the spectre of slower global growth.

U.S. and Iranian officials conferred about the Iraqi crisis on the sidelines of a meeting in Vienna, sources said. Meanwhile, Washington said it could launch air strikes if needed to quell the Sunni Islamist rebellion.

U.S. President Barack Obama notified Congress under the War Powers Resolution on Monday that the United States would deploy up to 275 military personnel to provide support and security for U.S. staff in Iraq.

"While much of Iraq's vital energy infrastructure and fields are in Shia-dominated southern Iraq, the negative news suggests the Iraqi government will have trouble controlling the situation," strategists at Barclays said in a note to clients.

Sterling was down about 0.1 percent on the day at $1.6962 . It climbed above $1.70 against the dollar for the first time in nearly five years on Monday on expectations that Britain might become the first major economy to tighten monetary policy since the 2008 financial crisis.

The pound has gained more than 1 percent since Bank of England Governor Mark Carney signalled the new tightening outlook on Thursday. His stance means the market will be paying close attention to the minutes of the BoE's June policy meeting on Wednesday, as well as to consumer inflation data due later on Tuesday. (Editing by Shri Navaratnam & Kim Coghill)

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