Forex - US dollar extends gains in Sydney morning trade; focus on payroll data

Forex - US dollar extends gains in Sydney morning trade; focus on payroll data

	Published : Fri, 09 Mar 2007 00:25 By : Agencies Print this Story

SYDNEY (XFN-ASIA) - The US dollar built on overnight gains against the yen and euro following the European Central Bank's less hawkish outlook and its widely expected interest rate hike, dealers said.

They said focus is clearly on tonight's US nonfarm payrolls report for February which should determine whether the greenback holds the gains achieved this week or see another selloff as in the previous week following the global equity rout.

At 9.45 am Sydney (2245 GMT Thursday), the dollar was at 117.30 yen, firmer compared to 117.11 in late New York trading, while the euro was at 1.3132 usd, down from 1.3136.

Dealers said the overnight gains in the US dollar began when ECB president Jean-Claude Trichet was not as hawkish in his commentary as expected after the central bank lifted its key rate by 25 basis points to 3.75 pct.

They said Trichet's alteration of the bank's view of interest rates as now 'moderate' as opposed to the previous outlook of 'low' saw the euro hit a low of 1.3110 usd. The central bank also changed its monetary policy view as 'on the accommodative side' rather than simply 'accommodative'.

Commonwealth Bank economist Sara Hoenig said while it is clear that the ECB is no longer on auto-pilot with respect to its tightening cycle, Trichet has signalled that further hikes remain on the agenda.

'We believe the ECB will deliver a further 25 basis point rate hike to 4.00 pct in the second quarter,' she said.

'Further down the track, the prospect of fiscal tightening and a higher euro are likely to be factors that limit the need for aggressive hiking into restrictive territory,' Hoenig added.

But the focus is now squarely on tonight's US employment report for last month.

NAB Capital strategists said speculators and funds are likely to square up positions ahead of the release of the key data, and this is likely to weigh on the dollar/yen and also support relatively

high-yielding currencies.

Meanwhile, the Bank of England left its key interest rate unchanged at 5.25 pct overnight as expected.

CBA's Hoenig said the BoE's assessment of the risks suggests the central bank is currently a great deal more worried about upside risks to inflation than downside risks to growth.

'We still see a good chance that the BoE will undertake further policy tightening to guard against these risks,' she said.

Sydney 9.45 am (2245 GMT Thursday)

US dollar

117.30 yen

1.2275 sfr

Euro

1.3132 usd

154.07 yen

1.6120 sfr

0.6809 stg

Sterling

1.9288 usd

226.20 yen

2.3671 sfr

Australian dollar

0.7773 usd

0.4031 stg

91.230 yen

New Zealand dollar

0.6857 usd

paul.daniel@xfn.com

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