US dollar firm with focus on Fed meeting; kiwi edges higher

[SINGAPORE] The US dollar held firm near two-week highs versus a basket of major currencies on Tuesday, with traders awaiting the US Federal Reserve's policy meeting this week for fresh catalysts.

The US dollar index, which tracks the greenback against a basket of six major peers, inched up 0.1 per cent to 93.931. That was within sight of Friday's peak of 94.087, the highest since Nov 21.

The Fed is widely expected to raise interest rates at its two-day policy meeting that will end on Wednesday and is expected to tighten policy further next year.

Most economists polled by Reuters now expect three more rate rises next year compared with two when surveyed just weeks ago, although the outlook remains clouded by stubbornly subdued inflation.

Since a rate hike this week has been priced in, the US dollar could sag initially after the Fed's policy announcement, said Steven Dooley, currency strategist for Western Union Business Solutions in Melbourne.

The Fed, however, will probably sound optimistic about the economic outlook and that is likely to help underpin the greenback, he added.

"Once the initial flurry of short-term volatility rides out, we're likely to see the US dollar stronger again," Mr Dooley said, describing how the US dollar could react to the Fed's policy announcement due on Wednesday.

"It seems most likely that the US Federal Reserve will continue to sound optimistic and certainly continue on the path to raise rates three times next year," Mr Dooley said.

Against the yen, the US dollar eased 0.1 per cent to 113.48 yen , after having risen to as high as 113.69 yen on Monday, the US dollar's strongest level in about a month.

The US dollar could come under pressure if Fed Chair Janet Yellen sounds less confident that inflation will rise toward the central bank's 2-per cent target, in her remarks during a post-meeting news conference, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

Even in that case the market reaction could be limited, however, as investors seek more clarity on the views of incoming Fed chair Jerome Powell, Mr Murata said. The US dollar will likely find support at levels around 112.00 yen or so, Mr Murata added.

The euro last changed hands at US$1.1771, having pulled back from Monday's intraday high of US$1.1811.

The New Zealand dollar set a fresh two-week high as investors welcomed the appointment of national pension fund chief Adrian Orr, a former central bank official, to head the Reserve Bank of New Zealand from March.

The New Zealand dollar, which had climbed nearly 1.1 per cent on Monday following the announcement, extended its gains on Tuesday and rose to US$0.6937 at one point, its highest level since Nov 28. It was last trading at US$0.6927, up 0.3 per cent on the day.

Investors were relieved by the selection of an official with extensive expertise in monetary policy, and expected he would not veer too far from the status quo as he carries out a new dual mandate.

Bitcoin slipped 1.4 per cent to around US$16,247 on the Luxembourg-based Bitstamp exchange, having set an all-time high of US$17,270 on the exchange on Monday.

Newly launched bitcoin futures on Chicago-based derivatives exchange Cboe Global Markets suggested that traders expect the cryptocurrency's blistering price gains to slow in the coming months, even as it blasted above US$17,000 on Monday to a fresh record high in the spot market.

REUTERS