* Signs of progress in U.S. debt talks ease default fear
* Market still cautious as deal yet to be sealed
* Proposed deal may be seen as stop-gap measure
* Dollar near 2-week high vs yen
* Rising risk appetite lifts Aussie to 4-month high
By Hideyuki Sano
TOKYO, Oct 15 The dollar held firm on Tuesday,
hitting a two-week high against the yen as top U.S. senators
signalled they could soon reach a bipartisan deal to reopen the
government and avert an immediate debt default.
Moves in major currencies were mostly modest, however, as
investors remained wary of further political bickering. The
exception was the Australian dollar, which jumped to a
four-month high, getting an extra lift from meeting minutes
showing Australia's central bank was in no hurry to cut interest
"Excessive pessimism about the U.S. has receded," said
Kyosuke Suzuki, director of forex at Societe Generale. "People
have been building dollar long positions, giving consideration
to the risk of not having dollars when a deal will eventually be
The dollar rose as high as 98.71 yen, its highest level in
two weeks, before giving up gains to trade at 98.47 yen,
down 0.1 percent on the day. Still it maintained much of its
recovery from a two-month low of 96.55 hit a week ago.
The dollar's index against a basket of currencies stood at
80.329 , having bounced back from Monday's low of
80.126 and keeping some distance from an eight-month low of
79.627 hit earlier this month, just after the U.S. government
entered a partial shutdown.
The euro was little changed at $1.3558, well within a
recent trading band of $1.35 to $1.36.
Senate Majority Leader Harry Reid on Monday suggested a deal
could be announced as early as Tuesday. His comments boosted
hopes that a final deal could be reached before the Thursday
deadline to raise the U.S. debt ceiling.
Still, many uncertainties remain, given that any deal would
have to win approval in the House of Representatives, where
there will likely be stiffer resistance from conservative
Republicans who demand more spending cuts.
The plan under discussion in the Senate is not particularly
inspiring to markets either, as it seeks only to raise the debt
ceiling through mid-February 2014 and to fund the government
operations to the middle of January.
"This is unlikely to lead to a sustainable rally in the
dollar and shares," said Masafumi Yamamoto, forex strategist at
Praevidentia Strategy. "U.S. policy makers are just kicking the
can and we will have another showdown in January. Under such
circumstances, it would be difficult for the Fed to reduce its
The debt crisis has taken talk of the Fed's tapering its
stimulus off the table for now, as the government shutdown since
the start of this month has hurt consumer sentiment.
Receding expectations of Fed tapering are a boost for
high-yielding currencies, such as the Australian dollar, which
had been hit by worries about a shrinking yield advantage over
the dollar earlier this year.
Against this backdrop, the Australian dollar hit a
four-month high, also benefiting from increased risk sentiment
on expectations of an imminent deal on the U.S. debt ceiling.
In addition, minutes of the Reserve Bank of Australia's
October policy meeting showed that the central bank was in no
hurry to lower rates and did not look overly concerned by the
recent currency rise.
The Aussie rose as high as $0.9534, above its Sept. 18 peak
of $0.9518 hit after the Fed's surprise decision not to trim
back its stimulus. It last stood at $0.9527, up 0.5
percent on the day.