FOREX-Aussie falls after RBA minutes, pound pauses
* Aussie drops after more dovish-than-expected RBA minutes
* Caution ahead of Fed meeting, concerns about Iraq crisis
* Sterling back off 5-year highs; BOE minutes awaited
LONDON, June 17 (Reuters) - The Australian dollar fell around half a percent on Tuesday after the country's central bank expressed more doubts about what is proving to be a messy economic recovery.
The euro, yen and dollar have been stuck in very tight ranges for the past week, but there was plenty more for investors on major currency markets to chew on.
Sterling fell on the back of lower than expected UK inflation numbers, taking the edge off a recent surge higher due to growing expectations the Bank of England could raise interest rates before the end of this year.
By 1050 GMT it was flat on the day against the dollar and euro at $1.6986 and 79.85 pence respectively.
An interview with another policymaker offered more fuel for speculation the tide is turning at the bank toward a rise in the premium for holding the pound. But dealers said it may take a strong message from minutes from its last policy meeting, due on Wednesday, to shift the currency back above $1.70.
"We could well see one or two votes for a rate hike at the last meeting when the MPC minutes are released tomorrow," said Alex Edwards, head of the corporate desk at currency transfer platform UKForex.
"The BoE's Governor may have been prepping the market for such a scenario, but this recent inflation data will put a small dent in expectations for a rate hike this year."
The pound had gained more than 1 percent, taking it briefly above $1.70 for the first time since 2009, after Bank of England Governor Mark Carney warned last Thursday the bank might raise rates earlier than markets had previously believed.
The minutes from the Reserve Bank of Australia expressed doubts as to whether it had done enough to stimulate the economy, knocking about half a cent off the dollar.
"I'm not sure there was that much in the comments really but we're in a slightly more risk-off sort of world at the moment and that probably made the Aussie more sensitive to this sort of message," said Daragh Maher, a strategist with HSBC in London.
The Australian economy, buffeted by a less certain outlook for growth in China, is struggling to shift focus away from the strong public spending and mining investment which has marked past years.
"The transition in activity was never going to be as simple or neat as hoped for amid numerous structural challenges," said Sue Trinh, a strategist with RBC Capital Markets in Hong Kong. "The RBA appears to be injecting a little more of that uncertainty into its communication."
The Aussie was 0.5 percent lower at $0.9359.
EYES ON FED AND IRAQ
The dollar inched a touch higher but overall looked pinned to a narrow range by caution ahead of this week's U.S. Federal Reserve meeting and concern about escalating violence in Iraq.
Against the euro the greenback has struggled to build on an almost five cent surge in the aftermath of action by the European Central Bank two weeks ago to loosen monetary conditions and stimulate a still-moribund euro zone economy. The euro was last trading at $1.3568. Save for some minimal volatility around German ZEW data, it traded broadly flat.
The Fed, meanwhile, is expected to announce a further reduction in its monthly bond purchasing programme, but most market participants do not expect a U.S. interest rate hike until mid-2015.
"There's a lot of chatter about the Fed's 'Dots' projections and what they say about where rates will be in 2015-16," said HSBC's Maher. "We see them falling off a bit but I think a lot of people are looking for them to rise, indicating a more hawkish drift."
The Dot projections offer an indication from the Fed of where it expects its benchmark Fed funds rate to be in the future. <0#FF:>
Against its Japanese counterpart, the dollar ticked up just over 0.1 percent to 101.97 yen, holding well above a two-week low of 101.60 yen marked last Thursday. (Editing by Mark Trevelyan)