* Major currencies mark time before Chinese economic data
* China Q2 GDP seen at 7.5 pct, mkt braced for downside risk
* Australian dollar most vulnerable to disappointment
By Wayne Cole
SYDNEY, July 15 (Reuters) - The U.S. dollar was marking time early Monday as investors tensed for key Chinese economic data that could well set the near term course for Asian currencies and the Australian dollar.
The U.S. dollar was idling at $1.3060 per euro, little changed from $1.3066 late in New York on Friday. It was a shade softer on the yen at 99.22, but steady against a basket of major currencies at 82.978. Trading was thin with Japan on holiday.
Uncertainty abounded before Chinese figures on gross domestic product (GDP), retail sales, industrial output and urban investment, amid fears the economy could be slowing faster than expected.
A Reuters poll of economists projected China’s economy grew 7.5 percent in the second quarter from a year earlier, slowing from 7.7 percent in the first.
Markets were spooked last week when China’s finance minister was reported as saying growth could be 7 percent this year, below the official target of 7.5 percent.
However, the official Xinhua News Agency later corrected that report to quote Minister Lou Jiwei as saying: “There is no doubt that China can achieve this year’s growth target of 7.5 percent”.
“The market’s priced in a lot of bad news now, so a figure around 7.5 percent could actually provoke a relief rally,” said a trader at an Australian bank in Sydney.
“Our economists think the other numbers, like retail sales, will come out on the upside of expectations, which could help as well. The Aussie could sure use it.”
The unease over China took a heavy toll on the Australian dollar on Friday, briefly knocking it under 90 U.S. cents for the first time since September 2010. Not only is China Australia’s biggest export market but the Aussie is often sold as a liquid proxy to hedge any weakness there.
On Monday, the Aussie had steadied somewhat at $0.9073 but looks likely to be plagued by uncertainty for some time given Beijing’s apparent preference for reform over breakneck growth.
Another source of market angst has been the Federal Reserve’s on-again off-again plans to start slowing its asset buying in coming months. Fed Chairman Ben Bernanke gets another chance to clarify the outlook in testimony to Congress on Wednesday and Thursday.
Bernanke sent the dollar reeling last week when accenting the dovish side of policy, while playing down the strength of recent payrolls data and warning that the Fed would push back if financial markets tightened prematurely.
“Having been shocked once, the FX market will be cautious in rebuilding substantial long USD exposure before the Bernanke testimonies,” said Alan Ruskin, global head of foreign exchange strategy at Deutsche Bank in New York.
“The pre-tapering price action may become more choppy, but he is unlikely to change a perception that the Fed is separating itself from other central banks in shifting toward a less accommodative stance.”
This “separation” of U.S. monetary policy is why much of the market is bullish on the dollar longer term, and why investors had been piling up long positions.
The value of net long positions rose to $27.94 billion in the week ended July 9, doubling in value since late June, according to the Commodity Futures Trading Commission.
Some of those, however, would have been cleared out in the wild swings following Bernanke’s comments last week.