* Shakeout complete, dollar index back at pre-payrolls highs
* Data restoring faith in U.S. recovery, CPI next in focus
* Aussie eyes local employment data
By Ian Chua
SYDNEY, Jan 16 The U.S. dollar traded at a near
one-week high against a basket of major currencies early on
Thursday, having returned to levels seen before last week's soft
payrolls data as faith in the U.S. economic recovery was
Upbeat numbers this week held out hope that Friday's
surprisingly soft jobs report was an anomaly and did not signal
the economy had lost steam at the end of last year.
U.S. data on Wednesday showed producer prices recorded their
largest gain in six months in December, yet there were few signs
of any sustained price pressures. The figures came a day after
U.S. retail sales rose and a core spending gauge posted a big
Investors were encouraged to go long on the greenback, again
betting the Federal Reserve can continue to unwind its massive
bond-buying stimulus over 2014. They pushed the dollar index
back to the highs seen last Friday.
Against the yen, the dollar bounced to 104.56, within
striking distance of a five-year peak of 105.45 yen scaled at
the start of the year.
Also helping, one of the Federal Reserve's most outspoken
doves, Chicago Fed President Charles Evans, said he backed a
continued wind-down of the Fed's bond-buying program and could
even see bigger cuts to the program if the economy strengthens.
Traders said U.S. consumer inflation data due later on
Thursday will be closely watched.
"A strong inflation print may encourage the Federal Open
Market Committee to take a more aggressive approach in
normalizing monetary policy as the central bank sees a more
robust recovery in 2014," said David Song, analyst at DailyFX.
"With that said, a positive CPI print may spark a bullish
reaction in the USD, but the dollar may face a larger decline
over the near-term should the data print fall short of market
The euro skidded to $1.3605, having touched a near
one-week trough of $1.3581 overnight, while the Australian
dollar briefly dipped below 89 U.S. cents, well off
Monday's peak of $0.9087.
The outcome of Australia's employment data due at 0030 GMT
could very well decide whether the Aussie makes another stab at
a three-year trough of $0.8820 plumbed last month.
Analysts polled by Reuters expect the economy created 7,500
jobs in December, leaving the unemployment rate steady at 5.8
Any disappointment in the jobs data will no doubt fuel
chatter of the need for another interest rate cut by the Reserve
Bank of Australia, possibly putting the Aussie on the same
trajectory as the Canadian dollar.
Speculation the Bank of Canada could turn more dovish
following a string of weak domestic data has knocked the
Canadian dollar to four-year lows. It fell as far as C$1.0992
per dollar overnight and was last at C$1.0941.