August 4, 2014 / 12:10 AM / 5 years ago

Dollar sits near highs as rally pauses, RBA in focus

SYDNEY (Reuters) - The U.S. dollar was stuck below a 10-1/2 month peak against a basket of major currencies early on Tuesday, having lapsed into uneventful trade in the usual post-payrolls data lull.

A money changer holds stacks of US dollar notes in Jakarta, August 29, 2013. REUTERS/Beawiharta

The dollar index stood at 81.320 .DXY, after shuffling in a slim 81.287-81.382 range on Monday. This followed a 0.2 percent fall on Friday - the biggest one-day decline in over three weeks - after the payrolls report disappointed some dollar bulls.

In the absence of any major economic data and ahead of policy reviews by central banks in Australia, Japan and Europe, traders said it was not surprising to see financial markets take on a more subdued tone.

The VIX volatility index .VIX eased back and U.S. equity markets also calmed down after last week's selloff, with the S&P 500 index .SPX managing a higher close.

The euro was in familiar territory at $1.3421, having drifted in a $1.3409-$1.3433 range on Monday. It remained just off an eight-month trough of $1.3366 plumbed last week.

The yen was also pretty much in a holding pattern, with the dollar buying 102.56 and the euro fetching 137.70.

“We remain constructive on the U.S. dollar, and continue to run long USD/JPY and short EUR/USD trades in our recommendations portfolio,” analysts at BNP Paribas wrote in a note to clients.

Possibly the best performing major currency was the Australian dollar, though it eked out just a 0.2 percent gain on the greenback.

The Aussie reached a session high of $0.9337, pulling further away from a two-month trough of $0.9275 plumbed on Friday.

Aussie bulls were probably betting on the fact that the Reserve Bank of Australia (RBA) is more than likely to adhere to its pledge to keep interest rates unchanged.

It has been exactly a year since the RBA last cut its cash rate and there is nothing on the horizon to sway the bank from changing its steady stance any time soon.

“An unchanged cash rate of 2.5 percent is odds on,” said David de Garis, senior economist at National Australia Bank in Melbourne.

“The market will be looking for signs of a cautious upgrade to their view on the economy given improved consumer sentiment, further signs of increased credit demand, especially for business, and yesterday’s more hopeful retailing conditions.”

Surveys on the services sector in China, Europe and the United States are also due later on Tuesday, although they tend to provoke less market reaction than similar reports on manufacturing activity.

Editing by Shri Navaratnam

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