August 4, 2010 / 2:03 AM / 9 years ago

Dollar enjoys rare rally

SYDNEY (Reuters) - The U.S. dollar was mostly higher in Asia on Thursday after U.S. economic data beat the market’s low expectations and sparked a bout of short-covering, though the overall mood remains bearish into the key payrolls report.

One standout was a surge in currencies leveraged to world growth and commodity prices, like the Australian and Canadian dollars, suggesting a lightening of the recent gloom on the global outlook.

Both currencies gained 0.5 percent on the U.S. dollar, and around 1 percent on the yen, euro and sterling.

The catalyst was an unexpected improvement in the ISM index of the U.S. service sector which nudged up to 54.3 in July, pointing to a faster rate of expansion.

“So not only is the services sector - the vast bulk of most modern economies - expanding, it is doing so at a faster pace,” said Adam Carr, a senior economist at broker ICAP.

That helped counter talk the Federal Reserve might take further steps into quantitative easing at its policy meeting next week and pulled Treasury yields up from record lows <US/>.

“Commodities are telling us that this global recovery has reasonable momentum,” said Carr, noting iron ore prices had risen around 20 percent in the past month, while copper was up 16 percent and wheat 40 percent.

All of which helped lift the Australian dollar to fresh three-month highs at $0.9182, while the U.S. dollar slid to its lowest in six week at C$1.0178.

Bucking the trend was the New Zealand dollar, which took a spill early Thursday after local jobless data proved far weaker than expected sending it down half a cent to $0.7295.

The U.S. currency did better elsewhere as speculators were stopped out of short positions, knocking the euro back to $1.3154, from a three-month peak of $1.3261. Traders reported good support in the $1.3140/50 area and more at $1.3107.

The dollar was also up at 86.29 yen, from a trough of 85.33, helped in part by buying from Japanese banks which stirred fears of official intervention.

Dealers are wary a move under 84.81 yen, a 15-year low, would finally prompt the Ministry of Finance into taking action on the currency’s strength, which is hurting Japanese exports, shares and the economy.

The dollar index .DXY edged up 0.4 percent to 80.950, and so back above its 200-day moving average at 80.746. However, it t still needs to get past 81.650 to break the bear trend of the past seven weeks, and otherwise risks a fall to 80.031 and 79.724.

There is little in the way of major economic data from Asia due on Thursday, leaving currencies to watch equity markets for direction. Early signs were that stocks would open higher in the region, so encouraging risk trades and restraining the yen.

The European Central Bank and the Bank of England hold meetings later on Thursday, though no policy changes are expected [ID:nTOPNOW1].

Reporting by Wayne Cole; Editing by Ed Davies

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