August 5, 2013 / 11:24 PM / 4 years ago

FOREX-Sterling shines as shaky Aussie awaits RBA rate decision

* Sterling perkier after data, BOE inflation report next focus

* Kiwi recovers from Fonterra food scare, Aussie awaits RBA rate decision

* Yen outperforms dollar & euro in G3 space

By Ian Chua

SYDNEY, Aug 6 (Reuters) - Sterling held onto gains early on Tuesday having risen broadly on the back of a survey that gave hope the UK economy is recovering, while the Australian dollar dangled precariously near a 3-year low ahead of an expected interest rate cut.

In comparison, the G3 currencies saw far less action with investors choosing to unwind bearish yen bets in thin trade and amid a dearth of market-moving news.

That saw the dollar slip to 98.26 yen from Monday's high around 99.15, while the euro dipped to 130.27 yen from 131.55.

Investors shrugged off comments from Dallas Fed President Richard Fisher, who said the central bank is nearer to scaling back stimulus after the unemployment rate dropped last month. Fisher is a well known opponent of the Fed's current third round of asset buying.

The focus now is on the Reserve Bank of Australia (RBA) which is widely expected to cut its cash rate by 25 basis points to a record low 2.5 percent. The decision is due at 0430 GMT.

"We may see a sharper selloff in the AUD/USD should the RBA keep the door open to further rate cuts in the coming months," said David Song, currency analyst at DailyFX.

"The central bank may retain a dovish tone for monetary policy throughout 2013 as China - Australia's largest trading partner - faces a more pronounced slowdown and continues to face a risk for a hard landing."

The Aussie dollar last traded at $0.8915, not far from a three-year trough around $0.8848 set on Monday. A break there could see the Aussie target the August 2010 low of $0.8770.

Investors warmed to sterling after a monthly industry survey showed Britain's dominant services sector grew at its fastest pace in more than six years last month.

Sterling powered to a one-week high of $1.5380, before edging back a touch to $1.5346.

Traders said investors are unlikely to get too excited before Wednesday's Bank of England Inflation Report, in which the central bank could indicate that interest rates will stay at record lows for a prolonged period.

Also vying for market attention, the New Zealand dollar staged a dramatic reversal after hitting a one-year low of $0.7670.

Investors initially dumped the kiwi after the country's top exporter, Fonterra, said it found bacteria that could cause food poisoning in some of its products.

Fonterra sought to reassure customers on Monday and said it was not facing a ban on all of its products in China, one of its biggest market.

Traders said there was good buying interest from banks and corporates, helping the currency jump back to $0.7848. Partly underpinning the currency is expectations that the next move by the Reserve Bank of New Zealand will be a rate hike, even if any action is not likely to be seen until next year.

There is a mere trickle of economic data out of Asia on Tuesday, including Australia's trade balance and Japan's leading indicator. In Europe, Italian GDP and German industrial orders are due.

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