Dollar Pulls Back Before Yellen’s Testimony; Aussie Sets 1-Month High

The dollar eased to a two-week low against a basket of major currencies on Tuesday ahead of congressional testimony by new U.S. Federal Reserve chief Janet Yellen, while the Aussie dollar benefited from an upbeat business survey.

Overall activity was thin due to a holiday in Japan, with the paucity of major economic data in the region holding most currencies inside recent ranges.

The dollar index eased 0.1 percent to 80.544 .DXY, having dropped to as low as 80.498 at one point, its lowest level since January 29. Against the yen, the dollar eased 0.1 percent to 102.16 yen.

The Australian dollar touched a one-month high of $0.9016, getting a boost after a survey showed that Australian business conditions rose to its highest in nearly three years in January.

The Aussie dollar last fetched $0.9004, up 0.6 percent from late U.S. trade on Monday.

There was probably some stop-loss buying at levels above $0.9000 that added to the Aussie dollar’s earlier rise, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Market liquidity was likely thin overall, with Japanese markets closed for a holiday, Okagawa added.

The euro rose 0.2 percent to $1.3670. Earlier, it touched a two-week high of $1.3679.

Later on Tuesday all eyes will be on Yellen, who faces her first test as chair of the world’s most powerful central bank.

She will have to deal with questions from U.S. lawmakers, some hostile to the central bank, who will want to know how committed she is to winding back exceptional stimulus measures.

Her testimony comes at a tricky time given two months of soft employment growth and as a deadline looms on raising the U.S. government borrowing limit before a possible debt default.

Analysts generally assume Yellen will reiterate the Fed will continue tapering its asset buying, as long as the economy improves as expected, while reaffirming a commitment to keeping rates low for a long time to come.

“We expect her messaging to be consistent with prior communications,” JPMorgan analysts wrote in a report to clients.

“We see no reasons why Chairman Yellen will front-run the FOMC in March, especially while waiting for the outcome of one more jobs report for additional clarity on the underlying trend in labour markets.”

Source : Reuters