* Dollar index hovers near four-week trough
* Kiwi outperforms, hits four-month highs vs USD
* Fed likely to reduce stimulus modestly, sound dovish
By Ian Chua
SYDNEY, Sept 18 The U.S. dollar held near a
four-week trough against a basket of major currencies in early
Asian trade on Wednesday as investors bet that any move by the
U.S. Federal Reserve to roll back stimulus will be very modest.
The Fed's highly anticipated rate review ends later in the
day and markets expect the central bank will probably announce a
small reduction to its $85 billion monthly bond-buying
Indeed, since the disappointing U.S. nonfarm payrolls report
on Sept. 6, markets have scaled back expectations on the size of
any pullback in stimulus.
That kept the dollar pinned near a four-week trough against
a basket of major currencies. On the yen, the greenback
bought 99.19, not far off Monday's two-week low of 98.45.
The euro stood at $1.3357, near a 2-1/2 week peak of
$1.3385 reached on Monday. The common currency was further
underpinned overnight by a closely watched report that showed
German analyst and investor sentiment jumped more than expected
But the standout performer among the major currencies was
the New Zealand dollar, which hit a four-month high of $0.8249
. It last traded at $0.8233.
The move came as New Zealand's Fonterra Co-operative Group,
the world's biggest dairy exporter, reported higher milk prices
at its second auction this month.
Overall, traders said there was little conviction in the
market as investors were unwilling to take fresh positions ahead
of the outcome of the Fed's policy review due at 1800 GMT.
Chairman Ben Bernanke will give a news conference after that.
Market consensus is for a cut of $10 billion to the
bond-buying stimulus, twinned with a pledge to keep interest
rates near zero at least until the jobless rate falls below 6.5
percent. Some analysts reckon the Fed may lower the threshold to
Traders said any delay to the tapering may be seen as dovish
by markets and could prompt investors to sell the dollar.
Conversely a bigger reduction of stimulus could be seen as
hawkish, lifting demand for the greenback.
BNP Paribas strategists said their base case scenario is for
the Fed to pass on announcing tapering, but leave the door open
for reducing stimulus later in the year.
"If they do elect to announce a tapering of purchases, we
expect the pace to be a gentle $10 billion with reduced emphasis
on a mid-2014 end point noted at the June press conference,"
they wrote in a note.
There is no major economic news out of Asia on Wednesday,
leaving the focus squarely on the Fed's decision and Bernanke's