June 30, 2014 / 11:42 PM / 4 years ago

FOREX-Dollar starts new quarter on the backfoot, Aussie eyes RBA

* Dollar index falls to seven-week lows

* Euro resilient, hits six-week highs despite low CPI

* RBA rate decision and China PMI in focus

By Ian Chua

SYDNEY, July 1 (Reuters) - The dollar languished at seven-week lows against a basket of major currencies on Tuesday, having extended a month-long decline after a recent batch of mixed data cast doubts on the strength of the U.S. economic recovery.

San Francisco Fed President John Williams said the U.S. central bank will probably need to keep interest rates near zero for at least another year, even as he expressed optimism the economy is on the recovery path.

The dollar index fell as far as 79.759, a low not seen since May 9, ending a woeful month for dollar bulls that saw it slump from a four-month peak of 81.020. In June, the index fell 0.7 percent.

Against the yen, the dollar bought 101.32, not far from a six-week low of 101.23.

Markets seemed bent on selling the dollar and chose to ignore optimistic U.S. data showing a jump in pending home sales to an eight-month high.

“It’s been more of the same overnight with further U.S. dollar weakness, with gains in the GBP, EUR, JPY, AUD, and the NZD triggered more by momentum and market ‘stops’ than any economy fundamental news,” said David de Garis, economist at National Australia Bank in Sydney.

In a move that is sure to displease the European Central Bank, the euro hit a six-week high near $1.3700. Against the yen, the common currency climbed to 138.75 as it continued to recover from last month’s trough of 137.70.

The resilience of the common currency sat at odds with data showing euro zone inflation remained mired at levels seen during the 2009 recession and that lending to households and firms slumped in May.

Data on Monday showed euro zone inflation stayed at 0.5 percent in June, far below the ECB’s medium-term target of just below 2 percent. Private sector loans fell 2.0 percent.

While the latest data will keep the pressure on the ECB to ease further, the central bank is considered highly unlikely to follow-up on last month’s wide-ranging stimulus steps when it holds its policy meeting on Thursday.

Instead, the bank is seen taking a wait-and-see approach rather than launching an asset-buying program in the footsteps of the Bank of Japan and Fed.

In Australia, no policy action from the Reserve Bank is expected later on Tuesday, with the cash rate seen steady at 2.5 percent. So the focus will be on whether the RBA will renew its efforts to talk down the local dollar, which remains stubbornly high above 94 U.S. cents.

The Aussie last traded at $0.9432, having oscillated around the 94 cent mark for three weeks now. Resistance at the recent high of $0.9445 and its 2014 peak of $0.9461 were capping the currency.

Ahead of the RBA’s decision at 0430 GMT, China will release a survey on its vast manufacturing sector at 0100 GMT.

Chinese factory activity is expected to have posted its best performance this year in June, further signalling the economy is regaining strength after an unsteady start to 2014. (Editing by Shri Navaratnam)

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