* Dollar index struggles at one-month lows
* Markets twitchy ahead of Fed policy meeting next week
* Kiwi a standout performer after hawkish-sounding RBNZ
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, July 26 The dollar languished near
one-month lows against a basket of major currencies on Friday,
having suffered a setback overnight as investors turned cautious
ahead of next week's Federal Reserve policy meeting.
Setting the greenback on a slippery slope was a Wall Street
Journal report that the Fed may debate changing its forward
guidance to help hammer home its message that it will keep rates
low for a long time to come, traders said.
"The article caused a stir, triggering another wave of
unwinding in dollar long positions. The Fed's meeting had been
seen as a non-event but now it is becoming a big focus," said
Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.
The dollar index was slightly easier at 81.681,
having slid more than 0.6 percent on Thursday to a low of
81.624, a level not seen since June 21.
The fall effectively terminated the greenback's tentative
bounce on Wednesday and placed it back on a downtrend that
started on July 10, when minutes of the Fed's June meeting gave
investors second thoughts about when the bank would start
The next major support level is seen at 81.50, where it has
its 200-day moving average as well as 76.4 percent retracement
of its rally from June to early July. The rally was driven by
expectations of an end in the Fed's quantitative easing.
Renewed pressure on the dollar saw the euro jump as far as
$1.3296, a high last seen on June 20. It last stood at
$1.3280, almost flat on the day.
Against the yen, the greenback was down 0.4 percent from
late U.S. levels at 98.84, having touched a two-week low of
98.75 at one stage.
For now, there are some bids near strong supports around
98.75, where it has its 90-day moving average as well as the top
of Ichimoku cloud.
The euro also lost a bit of ground on the Japanese currency,
slipping 0.4 percent to 131.32 yen and pulling away
from a two-month high around 132.74 set on Wednesday.
Traders agree that the dollar's near-term outlook hinges on
the Fed's two-day policy meeting ending on Wednesday as well as
the U.S. job data on Friday next week.
"It seems like the Fed is raising the bar on a future rate
hike. For the moment, the dollar is likely to trade in its
recent range until there is a clear signal from the Fed," said
Katsunori Kitakura, associate general manager of market making
unit at Sumitomo Mitsui Trust Bank.
Analysts at BNP Paribas said the arguments for a firmer
dollar in the third quarter still remained sound, especially as
the Fed is expected to taper its asset-buying programme this
But they said in a report that the risk-reward is
unattractive for new dollar longs heading into next week, and
there would probably have to be some surprise from data and a
shift in yield differentials in the dollar's favour for the
currency to resume its upward momentum.
"Friday's data calendar is limited to final Michigan
sentiment for July, which we expect to be revised a bit lower
from the preliminary reading of 83.9, with the measure
continuing to slowly retrace the big spike higher from May," the
BNP Parisbas report said.
The New Zealand currency was a standout performer, having
jumped 1.1 percent against the dollar on Thursday to $0.8105
, its highest in six weeks. It last traded at $0.8094,
0.4 percent above its late U.S. levels.
Investors warmed to the kiwi after the Reserve Bank of New
Zealand surprised some on Thursday with a slightly hawkish
statement, even as it pledged to keep the cash rate at a record
low 2.5 percent through the end of the year.
The kiwi also hit its highest level in nearly five years
against the Australian dollar, which slipped to as low as
NZ$1.1388 on Thursday. The currency pair last traded
at 1.1453, having fallen almost 10 percent from its March peak
Data out of Japan on Friday showed core consumer prices
turned positive and rose 0.4 percent in June from a year
earlier, marking the fastest pace of increase in nearly five
years. The outcome was in line with expectations.