SYDNEY (Reuters) - The U.S. dollar and yen were both on the back foot on Tuesday as a swathe of global industry data suggested an improvement in growth without being strong enough to risk any reduction in monetary stimulus from the Federal Reserve.
“Good but not too good, is the sweet spot for risk assets right now,” said a trader at an Australian bank in Sydney. “There was just enough stabilization in manufacturing to lift stocks, commodities and currencies leveraged to global growth.”
The resulting short covering benefited beaten down currencies like the Australian and New Zealand dollars while paring recent gains for the U.S. dollar.
Against a basket of currencies, the dollar index .DXY dipped 0.1 percent to 82.988 and away from a four-week peak of 83.344 reached on Friday.
The euro gained a little ground to $1.3068, off last week’s trough of $1.2983, its lowest since early June. Nevertheless, it stayed below chart resistance at $1.3106, the 100-day moving average, and the 200-day average at $1.3074.
The euro also firmed on generally soft yen to reach 130.21, a fourth straight session of gains. The dollar held at 99.65, having been unable to break strong offers in the 99.90/100.00 area.
Still, traders reported talk that a lot of stop-loss bids were building above 100.00, so a clear breach there could trigger a sharp move higher.
The Australian dollar recouped some of its recent losses to reach $0.9240, having hit a three-year low of $0.9110 on Monday. It faces a test later in the session as the Reserve Bank of Australia (RBA) announces the outcome of its monthly policy meeting at 0430 GMT.
A Reuters poll of 23 analysts found all but two expected rates to stay steady at 2.75 percent <AU/INT>, while the market implies a one-in-four chance of a cut.
The focus will be on the statement to see if the central bank keeps an implicit easing bias and for its take on the local dollar. Should the RBA reiterate that the currency is still too high, the market could take it as a green light to sell again.
There is scant economic data due out of Asia on Tuesday, and not much major in Europe or the United States.
Monday’s manufacturing reports out of the euro zone, Japan, and Britain all showed improvement. There were also encouraging signs out of debt-burdened peripheral euro zone countries such as Spain and Italy. <TOP/CEN>
The U.S. ISM report rebounded from an unexpected contraction in May, but hiring was the weakest in nearly four years. The latter was important as the Fed has made unemployment a key barometer for when it might start scaling back on asset buying.
Which is why the market is likely to become thinner and thinner into the monthly payrolls report on Friday. A strong reading would boost the dollar by fanning speculation about an early paring back of the Fed’s $85-billion-a-month bond-buying.
In contrast, the European Central Bank is likely to emphasize at its monthly meeting on Thursday that the euro zone economy still needs help. <ECB/INT>
Editing by Ian Chua