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Australian Dollar Firms on China Data, U.S. Dollar Perks Up - (Reuters)

Posted by Chris Advincula on Aug 9, 2013 6:58:00 AM

* Aussie gains on China output

* Dollar finds base after five straight losing days

* Traders preoccupied with when Fed will start tapering

By Anirban Nag

LONDON, Aug 9 (Reuters) - The Australian dollar rose to its highest in more than a week against the U.S. currency on Friday, bolstered by upbeat factory data from China, Australia's biggest export market.

But its gains could run out of steam as investors bought the U.S. currency on dips, traders said. That helped the dollar recover from seven-week lows against a basket of currencies with investors still expecting the Federal Reserve would be the first major central bank to withdraw stimulus.

The Australian dollar rose 0.5 percent to $0.9150, extending its 1.2 percent gain the previous day on stronger-than-expected Chinese trade data.

The dollar index rose 0.1 percent to 81.041, pulling away from Thursday's trough of 80.868, its lowest since June 19. The index has shed 1 percent this week as some trimmed favourable bets on the dollar as U.S. bond yields eased.

"It's quiet summer markets, volatility is subsiding and investors are quite long dollar," said Kiran Kowshik, currency strategist at BNP Paribas.

"There are some key indicators next week, including the retail sales, so I think the market will focus on that. If you do get stronger data the dollar should move higher."

Fed policymakers have hinted in recent weeks that the central bank could start to scale back its monthly bond buying in September, but this will depend on further improvement in the job market. Thursday's weekly jobless claims data showed layoffs fell to their lowest since late 2007.

Yet, not all investors are convinced the Fed will trim its bond buying of $85 billion a month next month after data last Friday showed U.S. employers slowed their pace of hiring in July.

U.S. 10-year Treasury yields remain below the highs above 2.70 percent seen before last week's U.S. payrolls data and the spread between similar dated German and Japanese bonds have narrowed in the past few days. That has prompted investors to trim long dollar positions.

As a result, the euro hit a seven-week high of $1.3401 on Thursday and was last flat on the day at $1.3380, not far from its June peak of $1.34175. The currency drew strength from an above-forecast German trade surplus on Thursday and Wednesday's much stronger-than-expected German factory data.

With Europe showing signs of stabilisation and concern about a sharp slowdown in China waning, investors bought growth-linked currencies, including the Australian dollar.

"Chinese data seems to be holding up pretty well. Coupled with import numbers yesterday, it seems you don't have to worry about a sharp fall in Chinese output," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.

The U.S. dollar slipped 0.1 percent to 96.66 yen, giving up some of overnight gains and edging towards a seven-week low of 95.81 yen hit on Thursday.


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