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Dollar finds footing as traders look to ECB

The dollar found support on Tuesday as investors awaited a European Central Bank meeting and U.S. data to gauge the policy outlook, while the Aussie blipped briefly higher after the Reserve Bank of Australia stuck with its tapering plans.

The greenback held the euro EUR= below $1.19 at $1.1872, was steady on the yen JPY= at 109.79 per dollar and drifted a little firmer on the Australian and New Zealand dollars at the end of the Asia session. The dollar index =USD sat at 92.200.

The Reserve Bank of Australia stuck with plans to taper its bond buying but said it would extend the timeline as the economy struggles with coronavirus lockdowns, triggering a brief rise in the currency to $0.7469 before it eased back to support at $0.7420.

Traders said the next moves in currency markets probably depend on Thursday’s European Central Bank meeting and then on the next U.S. jobs update, in October, after a weak reading last week probably delayed any Federal Reserve tapering announcement.

“The next payroll report on Oct. 8 now looms very large as the main event in considering the timing of tapering,” said Natwest strategist John Briggs in a note to clients.

Tapering is also the focus for Thursday’s ECB meeting, with economists expecting some sort of slowdown in bond purchases but wobbles in the euro and a rising stock market are pointing to trading floors taking a slightly different view.

“If the ECB is going to taper that might provide some support for the euro,” said Moh Siong Sim, an FX strategist at the Bank of Singapore.

“But overall I don’t think it’s going to go hawkish – it’s going to…offset the tapering with a more flexible asset purchase program,” he said.

Elsewhere, sterling GBP=D3 was marginally weaker at $1.3830 and the kiwi NZD=D3 dipped slightly to $0.7117 with the Aussie AUD=D3 late in Asia trade as the Aussie wound back its post-RBA jump. AUD/

The Central Bank said it would cut its bond buying by A$1 billion a week to A$4 billion, though it also extended the programme to at least mid-February which was seen as a dovish concession as lockdowns stall Australia’s economic recovery.

“For the most part you’d generally regard them as being quite optimistic on the growth prospects for the next year or so, but we shouldn’t forget it’s dovish guidance on the cash rate,” said Sean Callow, currency analyst at Westpac.

“This reversal in the Aussie shows that it is fragile and it’s going to be hard work to get to $0.75.”

Elsewhere, China’s August trade data were strong and lent support to the yuan CNY=CFXS, which has faced some pressure from growing expectations of monetary easing.

Also on the radar this week is the Bank of Canada meeting on Wednesday, where it is expected to keep rates steady but brush aside a surprise contraction in the economy in the second quarter to keep on track for a hike this year.

The Canadian dollar CAD=D3 softened a tiny bit to C$1.2543 on Tuesday, but it remains near multiweek highs.

In cryptocurrencies, bitcoin BTC=BTSP and ether ETH=BTSP were steady at $52,736 and $3,927, respectively.
Source: Reuters (Reporting by Anushka Trivedi in Bengaluru; Editing by Kim Coghill)

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