* Dollar index posts biggest one-day gain in a month
* U.S. factory activity accelerates, highest in two years
* Nonfarm payrolls the next hurdle for U.S. dollar
By Ian Chua
SYDNEY, Aug 2 The U.S. dollar held onto
overnight gains early in Asia on Friday, having posted its
biggest one-day rally in a month after a batch of upbeat
economic data supported the Federal Reserve's plan to start
reducing stimulus this year.
U.S. Treasury yields jumped, while the dollar index
rose 1.1 percent to its highest in about two weeks after a
closely watched ISM survey showed factory activity at a two-year
high in July.
The ISM employment index reached its highest since June last
year, while a separate report showed first-time applications for
jobless benefits hit a 5-1/2-year low last week, boding well for
the influential nonfarm payrolls report due later on Friday.
"We think risk-reward is increasingly favourable for
establishing new long USD positions versus core currencies,"
said analysts at BNP Paribas.
"To be sure, Friday's July jobs report represents a final
significant event risk for the dollar ... and our estimate of
165,000 payroll growth is below the 185,000 consensus. However,
we think numbers in line with our estimate will not be unduly
damaging for the USD."
The broad rally in the dollar saw the euro drop 0.6 percent
to a low around $1.3192, while the yen fell towards 100
per dollar, well off this week's high around 97.58 per
dollar. The euro last traded at $1.3209, while the dollar
fetched 99.46 yen.
The outcomes of the European Central Bank and Bank of
England rate reviews on Thursday offered no surprises, with both
central banks leaving their benchmark rates unchanged at 0.5
The ECB affirmed it will keep rates low for an extended
period and could still cut if necessary, while the BoE left
investors waiting for an expected announcement next week of a
new strategy to get Britain's economy back in shape.
Among the biggest movers, the New Zealand dollar fell about
1 percent to a two-week low of $0.7853.
The Australian dollar, already on the back foot, dipped to a
fresh three-year low of $0.8907 before recovering a bit
to last stand at $0.8939. It was on track to end the week down
more than 3 percent.
Analysts in a Reuters poll conducted this week were
unanimous in expecting a quarter point rate cut at Tuesday's
Reserve Bank of Australia policy meeting.
Slower growth in China, Australia's top export market, a
domestic economy that is growing below potential and a tame
inflation outlook mean the RBA has room to lower its cash rate
to a record low 2.5 percent.
The data flow out of Asia on Friday is mostly second tier,
leaving the focus on U.S. jobs.