FOREX-Dollar dips; Aussie inches up on new PM

Thu Jun 24, 2010 10:51am IST

* Dollar index eases after poor data, Fed vow

* Aussie firm on leadership change, but off highs

* GBP hits 6-wk high, resistance at $1.5000 and $1.5050

* But econ uncertainty limits gains in risky currencies

By Satomi Noguchi

TOKYO, June 24 (Reuters) - The dollar stayed on the defensive on Thursday after the Federal Reserve reiterated its pledge to keep rates low, while the Australian dollar edged up after the country's ruling party chose a new Prime Minister, reducing political uncertainty there.

The dollar's broad weakness helped the euro to trade firmly and sterling to extend gains to a six-week high, yet traders remained reluctant to chase those advances with more signs of fragile economic recovery tempering appetite for risky positions.

"The dollar is clearly under pressure after the FOMC indicated that interest rates will not rise anytime soon. But there is no other currency good enough to buy against the dollar either," said Nobuhiko Akai, senior manager of the forex trading group at Bank of Tokyo-Mitsubishi UFJ.

"The euro's limited gains against the dollar reflect deep-seated market concerns about more bad news from the region's debt or banking sector."

The Aussie AUD=D4 rose as high as $0.8771 after Australia's ruling Labor Party elected a new Prime Minister in Julia Gillard, in a bid to avoid election defeat later this year. [ID:nSGE65M0LY]

"Clearly this is a positive for the Australian dollar and stocks in the short and medium term," said Su-Lin Ong, a senior economist at RBC Capital Markets.

"It removes the political uncertainty that had been growing and would have only got worse. We assume Gillard will negotiate on the mining tax and produce a watered-down version."

Gillard immediately offered to end a bitter dispute over a controversial "super profits" mining tax, saying she would throw open the door for fresh negotiations. But she stressed miners should pay more tax. [ID:nSGE65M0LY]

The Aussie later trimmed gains to stand at $0.8742, steady from late U.S. trading on Wednesday.

The U.S. dollar was on the backfoot after the Fed softened its view on the U.S. economy in its statement, noting pockets of weakness in certain sectors and warning against volatile financial markets given the euro zone debt crisis.

For the Fed statement, double-click on [ID:nTRU002480]

The interest rate futures market is pricing in the Fed's next rate increase by the middle of next year.

The dollar index .DXY dipped 0.1 percent to 85.694 after posting an outside day reversal the previous day, suggesting more losses might be in store.

Sterling rose to $1.5001 GBP=D4, the highest since May 12, extending gains made the previous day after a hint of an early rise in interest rates in the Bank of England's minutes. After trimming some gains, sterling stood at $1.4979 for a gain of 0.1 percent on the day.

Its rise on Wednesday pushed sterling up above the cloud on daily Ichimoku charts, a bullish signal for the currency.

Sterling is now likely to find support at the top of the cloud at $1.4876, while facing resistance near $1.5000 and $1.5050, said Hiroyuki Tanaka, chief technical analyst at Mizuho Corporate Bank.

Against the yen JPY=, the dollar stood at 89.87 yen, stuck near a one-month low of 89.73 yen hit on Wednesday on trading platform EBS.

The dollar was undermined as U.S. Treasury yields fell with data showing sales of new U.S. single-family homes tumbling more than expected in May.

The euro rose 0.2 percent to $1.2331 EUR=.

China's central bank set the yuan's daily mid-point at 6.8100 per dollar on Thursday, little changed from Wednesday's close, and shrugged off renewed calls by U.S. lawmakers for legislation to press China to allow the yuan to appreciate. [ID:nECB000555]

Major currencies showed muted reaction to the yuan as the yuan-linked trading fad faded after choppy price actions earlier this week following China's initial announcement on yuan flexibility. (Additional reporting by Anirban Nag in Sydney and Masayuki Kitano in Tokyo; Editing by Joseph Radford)

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