Thursday October 30, 2014 - 23:51:49 GMT
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Reuters - www.reuters.com
FOREX-Dollar underpinned by GDP, BOJ next in focus
* Dollar index at 4-week highs, but off peak
* Aussie, NZD perk up as well on better risk appetite
* BOJ expected to maintain stimulus, but could surprise
* GPIF, euro zone inflation also watched
By Ian Chua
SYDNEY, Oct 31 (Reuters) - The dollar held at four-week highs against a basket of major currencies early on Friday, getting another boost from encouraging growth data a day after the Federal Reserve gave an upbeat assessment on the economy.
The dollar index climbed as far as 86.491 - a high last seen on Oct. 6 - after U.S. gross domestic product grew at an annual pace of 3.5 percent in the third quarter, beating forecasts for 3.0 percent.
The index has since eased back to 86.174, but was still up 0.5 percent so far this week.
Against the yen, the greenback bought 109.32, near a four-week high of 109.47 reached overnight. The euro fell as low as $1.2545, but managed to recover to $1.2606.
The GDP report should go some way in justifying the Fed's optimistic stance on the economy when it announced the end of its monthly bond buying stimulus program on Wednesday.
Yet, some analysts said it was not all that rosy and a closer look at the details could explain why dollar bulls had been more circumspect.
"The upside surprise was mostly located in defense spending, inventories and, to a lesser extent, net foreign trade. All three of these categories tend to be associated with payback the following quarter," analysts at JPMorgan wrote in a note to clients.
"As a result we are lowering our early estimate for Q4 GDP growth from 3.0 percent to 2.5 percent."
Still, the U.S. data helped lift risk appetite generally, which in turn lured some investors back into commodity currencies. That saw the Australian dollar pop back above 88 U.S. cents, from a one-week low of $0.8756.
It's New Zealand counterpart climbed to $0.7837, turning around from a slide to a four-week low of $0.7765 on Thursday after the Reserve Bank of New Zealand softened its tightening bias.
With the Fed policy meeting and U.S. GDP data out of the way, the focus should now turn to the Bank of Japan, which wraps up its policy review later in the day. It is also due to release its semi-annual report.
The BOJ is widely expected to maintain its massive asset buying programme and keep its forecast that inflation will hit its 2 percent target next year, suggesting no further stimulus is on the horizon.
However, analysts at RBC said a small minority expect further easing through an increase in the bank's monetary base target.
"But given the uncertainty over the next consumption tax increase and the BOJ's resolve to avoid piecemeal policy changes, we are with the majority for no change, which would be small kneejerk JPY-positive," they wrote in research note.
Traders said the market will also be keeping a close eye on whether Japan's Government Pension Investment Fund will announce new allocation targets for its portfolio on Friday as reported by the Nikkei newspaper.
Speculation that the $1.2 trillion GPIF public pension fund will increase its holdings of higher-yielding foreign assets have weighed on the yen.
In Europe, all eyes will be on the region's latest inflation reading. Data on Thursday showed annual inflation in Germany unexpectedly slowed in October, while Spanish consumer prices fell, suggesting the risk of deflation in the wider euro zone has not yet abated. (Editing by Shri Navaratnam)
© Thomson Reuters 2014. All rights reserved
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