* Euro stays near two-month high vs dollar as ECB meeting
* Spike in money market rates supports euro
* Aussie rises on upbeat local jobs data and China trade
(Recasts, adds comments, details)
By Anirban Nag
LONDON, May 8 The euro rose against the dollar
on Thursday, trading not far from recent two-month highs and
buoyed by a rise in overnight money market rates driven
by dwindling excess cash in the euro zone.
The single currency has gained over 4 percent in the past
six months and the latest trend came ahead of an interest rate
announcement by the European Central Bank that was unlikely to
make changes to benchmark rates.
The ECB has focused on the euro's strength, warning that a
further rise could force it to take drastic measures including
quantitative easing, wherein it pumps euros into the system and
drives down the currency's value.
While it has not drawn a line in the sand, traders say the
ECB gets uneasy when the euro rises towards $1.40. A Reuters
poll on Wednesday showed most economists expect ECB action if
the euro hits $1.42.
On Thursday, the euro edged up 0.1 percent to $1.3928
, not far from a near two-month peak of $1.3952 hit on
Tuesday. On a trade-weighted basket of currencies
it was trading near highs seen since mid-March.
Traders said the euro could quickly fall back towards
support just under $1.3800 in the event of any policy surprises.
But if the ECB stands pat, the common currency could rise to
test the $1.40 mark.
"We have seen (ECB President) Mario Draghi use rhetoric to
curtail the euro and with limited success," said Jeremy Stretch,
head of currency strategy at CIBC World Markets.
"The time has come to walk the talk. If he talks about
improving credit conditions and better growth prospects, the
euro will nudge towards $1.40 threshold."
The euro has drawn support in recent months from factors
such as the euro zone's current account surplus as well as signs
of inflows into euro zone assets, including peripheral bonds.
That has kept the euro resilient even in the face of an
expected divergence in the outlook for U.S. and European
monetary policy, with the Fed in the midst of winding down its
massive stimulus while the ECB is expected to keep monetary
policy loose or possibly ease further in coming months.
AUSTRALIAN DOLLAR FIRM
The Australian dollar outperformed, getting a boost from
data showing that Australian jobs growth beat expectations for a
third straight month.
The Aussie dollar rose 0.5 percent to $0.9380,
having added to its gains after data showed that Chinese exports
and imports both rose slightly in April from a year ago, against
forecasts for them to decline.
"You've seen firmer export performance in Korea, Taiwan,
Philippines and Malaysia recently," said Greg Gibbs, FX
strategist for RBS in Singapore. "So there's a bit of a theme
there, consistent with some improvement in the global economic
outlook. That certainly supports the Aussie."
In addition, the U.S. dollar has been weak and market
volatility has been generally low globally, which encourages
trades aimed at benefiting from higher yields, Gibbs said.
The dollar index was at 79.152, not far from a
six-month low of 79.06 on Tuesday. It suffered a huge fall on
Tuesday, but managed to stabilise after Federal Reserve Chair
Janet Yellen offered no surprises in her testimony to Congress
The dollar eased 0.1 percent to 101.80 yen, holding
above a three-week low of 101.43 yen set on Wednesday.
(Editing by Richard Borsuk/Mark Heinrich)