* Dollar index holds below a four-year peak set on Monday
* Euro steady above a 14-month trough
* Aussie slightly firmer as HSBC flash China PMI tops
(Updates prices, adds comments)
By Masayuki Kitano and Ian Chua
SINGAPORE/SYDNEY, Sept 23 The dollar hovered
just below a four-year peak against a basket of major currencies
on Tuesday as the euro steadied near a 14-month trough with
sellers taking a bit of a breather.
The dollar index last traded at 84.671, having peaked
at 84.861 on Monday, a high not seen since July 2010. It has
posted 10 straight weeks of gains as markets wagered U.S. rates
would rise long before those in Europe or Japan.
The dollar's run even prompted New York Federal Reserve bank
president William Dudley to caution that the gains could
complicate the Fed's job, potentially hurting U.S. economic
performance and pushing down inflation.
Dudley said on Monday that while the value of the dollar is
not a policy goal of the Fed's, it had to be taken "on board" as
part of the central bank's economic forecast.
Against the yen, the dollar eased 0.1 percent to 108.77 yen
, down from a six-year high of 109.46 set on Friday.
The Australian dollar got a slight boost after a private
survey showed that activity in China's manufacturing sector
unexpectedly picked up in September.
The HSBC/Markit Flash China Purchasing Managers' Index (PMI)
rose to 50.5 in September from August's final reading of 50.2.
The survey, however, also showed that factory employment slumped
to a 5-1/2 year low.
The Aussie dollar rose 0.2 percent to $0.8892,
pulling away from Monday's seven-month low of $0.8851.
Concerns about slowing Chinese growth and a big drop in the
price of iron ore, Australia's top export earner, have added to
pressure against the Australian dollar, which has slid 4.7
percent this month. Chinese steel and iron ore futures have
fallen to record lows this week.
"It hasn't really been led so much by what's happened
domestically in Australia. I think it's been more about China,
about commodity prices, and about a stronger U.S. dollar," said
Hamish Pepper, currency strategist for Barclays in Singapore,
referring to the Aussie dollar's recent decline.
Analysts said market positioning may not help the Aussie
dollar too much, at least judging by data from the U.S.
Commodity Futures Trading Commission, which shows that
speculators held net long positions in the Aussie dollar as of
the week ended Sept. 16.
"At the very least it suggests that perhaps positioning
won't stand in the way of a further move lower," said Pepper at
On Tuesday, the euro held steady at $1.2853. The
common currency has pulled up from Monday's fresh 14-month low
of $1.2816, prompting some traders to suspect it might correct
higher as key support near $1.2800 loomed.
But the bigger picture for a stronger greenback should
remain intact thanks to the diverging interest rate views
between the United States and its major counterparts including
Europe and Japan.
European Central Bank Governor Mario Draghi on Monday
reiterated that the bank is ready to use additional
unconventional tools if needed to spur growth.
Still, there is a healthy dose of scepticism that the ECB
would launch a bond-buying stimulus program any time soon.
"Draghi is more likely to be teasing the market than making
any firm commitments. Any unconventional measures need to be
'within our mandate' and the Buba (Bundesbank) would doubtless
argue that government bond buying was outside it," analysts at
National Australia Bank wrote in a note to clients.
"Still constructive ambiguity could suit Draghi at the
moment as it puts downward pressure on the euro, which gives him
some time to hope that deflationary forces ease."
(Editing by Shri Navaratnam and Richard Borsuk)