* Aussie dollar shrugs off downbeat China data, soars after
RBA stands pat
* Yen bounces back after downward blip, with sales tax hike
to proceed as planned
* Euro firms but Italian politics remain a major risk
By Lisa Twaronite
TOKYO, Oct 1 The dollar wobbled against a basket
of major currencies and gave up its gains against the yen on
Tuesday after the U.S. failed to reach a compromise ahead of the
deadline for a looming government shutdown.
The yen bounced back after an earlier downward blip that
came after Japan's Prime Minister Shinzo Abe said he had decided
to go ahead with a planned hike in the national sales tax, while
the Australian dollar soared after that country's central bank
The U.S. government directed federal agencies to cut back
services after lawmakers could not break a political stalemate
that sparked new questions about the ability of a deeply divided
Congress to perform its most basic functions.
The standoff came a few weeks ahead of the next political
battle to raise the federal government's borrowing authority.
Failure to do the latter by mid-October could result in a
historic U.S. debt default that would threaten the world's
biggest economy and reverberate around the globe.
"I think the dollar's reaction to the shutdown news wasn't
bigger because it's still the middle of the night in America, so
there was no immediate impact. We still need to watch
developments from now," said Masashi Murata, senior currency
strategist at Brown Brothers Harriman in Tokyo.
The dollar index skidded about 0.2 percent on the day to
80.105, holding above Monday's low of 80.030, which was
its lowest since February.
Against its Japanese counterpart, the dollar also slipped
about 0.2 percent to 98.07 yen, moving back toward a
one-month low of 97.48 yen hit on Monday, according to Reuters
The yen remained under pressure, with the Japanese
government on track to raise the national sales tax to 8 percent
in April from 5 percent as it tries to put its fiscal house in
To soften the impact of the tax, Abe will also announce
later on Tuesday an economic stimulus package worth 5 trillion
yen or more, according to a final draft seen by Reuters.
The Bank of Japan's quarterly "tankan" survey of business
sentiment earlier on Tuesday was stronger than expected,
cementing the case for Abe to proceed with the planned sales tax
hike next year.
Downbeat data from China also added to investors' wariness.
China's official Purchasing Managers' Index (PMI) stood at 51.1
last month from August's 51.0, below expectations in a Reuters
poll for a rise to 51.5, as small firms struggled in the face of
overcapacity and weak demand. That added to concerns a nascent
economic recovery there may be foundering.
The Australian dollar shrugged off the Chinese data and
soared after the Reserve Bank of Australia kept its cash rate at
a record low of 2.5 percent, and offered little guidance on the
chance of further cuts.
The Aussie jumped 0.8 percent to $0.9390, from
$0.9338 before the RBA decision, moving away from Monday's low
The Aussie has rebounded by around 4 U.S. cents over the
past month, partly in reaction to the Federal Reserve's surprise
decision to keep its asset buying programme intact.
"A lower level of the currency than seen at present would
assist in rebalancing growth in the economy," RBA Governor Glenn
Stevens said on Tuesday.
The euro firmed after staging a rebound overnight on news
from Italy that as many as 20 senators from Silvio Berlusconi's
centre-right party were ready to break away, dealing a blow to
his plans to topple Prime Minister Enrico Letta's coalition
The common currency stood at $1.3543 after rallying
from Monday's trough of $1.3466, according to Reuters data, as
investors scrambled to unwind bearish trades. Against the yen,
the euro was steady at 132.89, holding well above a
three-week trough of 131.33 yen plumbed on Monday.