Dollar finds footing as traders look to ECB


The dollar found support on Tuesday as investors anticipated the outcome of a European Central Bank meeting and U.S. data, while the Australian currency edged higher as the Reserve Bank of Australia maintained its tapering plans.

At the end of the Asia session, the greenback kept the euro below $1.19 at $1.1872, was steady against the yen at 109.79 per dollar, and slid a touch firmer against the Australian and New Zealand dollars. The sat at 92.200 degrees.

The Reserve Bank of Australia kept its bond-buying program on track but warned it would extend the deadline as the economy grappled with coronavirus lockdowns, causing the AUD to briefly jump to $0.7469 before easing back to support around $0.7420.

Traders believe the next swings in currency markets will be determined by the European Central Bank meeting on Thursday, followed by the next U.S. jobs report in October, after a dismal reading last week likely postponed any Federal Reserve tapering announcement.

In a letter to clients, Natwest strategist John Briggs wrote, “The next payroll report on Oct. 8 now looms very large as the major event in assessing the timing of tapering.”

The focus of Thursday’s ECB meeting will be on tapering, with economists expecting a reduction in asset purchases, but wobbles in the euro and a soaring stock market suggest trading floors will take a slightly different view.

“If the ECB starts tapering, that might help the euro,” said Moh Siong Sim, an FX strategist at the Bank of Singapore.

“But I don’t think it’ll go hawkish,” he said. “I think it’ll counter the tapering with a more flexible asset purchase program.”

In other news, sterling was slightly weaker at $1.3830, and the Australian dollar slipped to $0.7117 late in Asia trade, as the Aussie retreated from its post-RBA rally. [AUD/]

The Reserve Bank of Australia announced that it will reduce bond purchases by A$1 billion per week to A$4 billion, but that it would continue the program until at least mid-February, which was considered as a dovish concession as lockdowns stymie Australia’s economic recovery.

“For the most part, you’d see them as very positive on growth expectations for the next year or so,” said Sean Callow, currency analyst at Westpac. “But we shouldn’t forget its dovish guidance on the cash rate,” he added.

“This reversal in the Australian dollar demonstrates that it is vulnerable, and getting to $0.75 will be difficult.”

In other news, China’s August trade numbers were solid, bolstering the yuan, which had been under pressure due to rising expectations of monetary easing.

The Bank of Canada’s meeting on Wednesday is also on the agenda this week, with the central bank likely to hold rates constant but ignore a surprise downturn in the economy in the second quarter in order to stay on track for an increase this year.

On Tuesday, the Canadian dollar weakened slightly to C$1.2543, but it remains near multiweek highs.

Bitcoin and ether, the two most popular cryptocurrencies, remained stable at $52,736 and $3,927, respectively.

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