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The dollar hovered near its highest level in two months against a basket of currencies on Tuesday on growing expectations of an imminent U.S. interest rate hike, while the Australian dollar jumped on surprising strong local economic data. The latest spark for dollar bulls came from Federal Reserve Chair Janet Yellen, who on Friday said a rate increase in the coming months "would be appropriate," if the economy and labour market continued to improve.
Better-than-expected industrial production data and month-end buying by Japanese exporters helped to support the yen for now. The data tempered expectations that the Bank of Japan could expand its stimulus as soon as in June after Japanese Prime Minister Shinzo Abe pitched a plan on Monday to delay next year's sales tax hike to fellow ruling party members.
If U.S. payrolls due on Friday show solid job growth and if Yellen signals a rate hike in her speech on the following Monday, the dollar could break above the previous April peaks, said Koichi Takamatsu, manager of forex at Nomura Securities. But that scenario may not materialise if the spectre of a U.S. rate hike hurts broader risk sentiment and push down prices of riskier assets, Takamatsu also said. In such cases, traders also buy the yen, which tends to be bought at time of financial stress because investors unwind yen-funded positions.
The Australian dollar jumped after strong readings on building approvals and net exports. Still, it looks set to become the worst performer among so-called G10 currencies this month, having declined 4.8 percent, after the Reserve Bank of Australia's rate cut early this month started a fresh downtrend.
EUR/USD: during the Asian session the pair traded in the range of $1.1135-55
GBP/USD: during the Asian session the pair rose to $1.4725
USD/JPY: during the Asian session the pair traded in the range of Y110.80-35
Based on Reuters materials
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