December 12, 2013 / 5:41 AM / 4 years ago

U.S. dollar regains traction, Aussie hits the skids

SYDNEY (Reuters) - The U.S. dollar rose in Asia on Friday, having made a solid comeback overnight on upbeat retail sales data while the Australian dollar took a battering following more jawboning from the country’s central bank chief.

A U.S. dollar note (bottom) is pictured alongside other currencies including (L-R) the Australian Dollar, Singapore Dollar, Korean Won and China's Yuan in this picture illustration taken in Washington, October 14, 2010. REUTERS/Jason Reed

The dollar index .DXY last traded at 80.216, pulling further away from a six-week low of 79.757 plumbed on Wednesday. The euro slipped to $1.3748 from a six-week high of $1.3811, snapping six-straight sessions of gains.

Not helping the common currency, data showed euro zone industrial output fell in October at its steepest monthly rate in more than a year.

The report was a timely reminder for euro bulls as it highlighted the fragility of the bloc’s economic recovery and supported the case for further central bank stimulus.

Yet, the euro outperformed the yen, rising to a fresh five-year high of 142.47. The greenback also rebounded against the Japanese currency, nearing its 2013 peak of 103.74 set in May. It was last at 103.60 yen.

With the Bank of Japan intent on maintaining its ultra-loose monetary policy, the yen remains the funding currency of choice.

Demand for the greenback returned with a vengeance overnight after data showed U.S. retail sales rose solidly in November and the past month was revised higher.

This prompted some analysts to lift their fourth quarter GDP growth estimates by as much as half a percentage point to as high as a 2.2 percent annualized rate.

The upbeat data also helped keep alive expectations the Federal Reserve could start scaling back its massive bond buying stimulus as early as next week when it holds its last policy meeting for the year.

A man holds Japanese 10,000 Yen ($121) bank notes in front of a bank in Tokyo November 22, 2012. REUTERS/Kim Kyung-Hoon

U.S. Treasury yields rose, pushing the benchmark 10-year yield to 2.88 percent, within sight of its 2013 peak of 3.01 percent set in September.

“We expect to see the USD trade well into next week’s Fed meeting,” analysts at BNP Paribas wrote in a note to clients.

In contrast, the Australian dollar came in the crosshairs of sellers after Reserve Bank of Australia Governor Glenn Stevens again said he would prefer to see the local dollar lower as a boost to trade-exposed sectors of the economy.

Two Euro coins are seen after being minted in the Austrian Mint (Muenze Oesterreich) headquarters in Vienna June 20, 2013. REUTERS/Leonhard Foeger

While Stevens said he did not have a specific target for the currency, he noted that he had thought 85 cents was a more reasonable level than 95 cents.

Investors, already bearish on the Aussie dollar, jumped at Stevens comments, knocking the currency to its lowest in over three months. It fell more than 1 percent on Thursday and was currently trading near the low at $0.8913.

Immediate support is seen at $0.8848, the trough set in August.

“Clearly, these comments open up the scope for a further move lower in AUD/USD in end-of-year markets that are already exhibiting signs of lower liquidity,” said Sally Auld, strategist at JPMorgan in Sydney.

“And while the market might not gravitate towards the 85 level immediately, it nonetheless provides some clarity around the broad level of the AUD/USD that might be deemed appropriate by policy makers.”

Auld said this would give the market confidence that short AUD positions are still the way to go despite a 7.9 percent decline in AUD/USD since October 22.

Editing by Shri Navaratnam

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