Dollar bulls rounded up by Fed minutes, Aussie eyes jobs data

Credit: Reuters/Siphiwe Sibeko

American dollar notes are displayed in this photo illustration in Johannesburg August 13, 2014.

The dollar index .DXY slid to 85.198, retreating further from a four-year peak of 86.746 set on Friday. The euro jumped to $1.2733 EUR= and was now more than two cents off a two-year trough.

It was steadier on the yen at 108.20 JPY=, though still well away from a six-year high of 110.09 set last week.

A recent string of upbeat U.S. data, the latest being Friday's non-farm payrolls, had led dollar bulls to believe the Fed might hike interest rates sooner rather than later.

But minutes of the Fed's September meeting suggested the central bank was in no such hurry. In fact, policymakers were worried the recent rally in the greenback might slow the gradual increase in inflation toward the Fed's 2 percent goal.

There were also concerns that a persistent shortfall of economic growth and inflation in the euro zone, slower growth in China or Japan or geopolitical risks in the Middle East could 'lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector.'

'The risk of slower growth in Europe and exchange-rate pass through of a stronger dollar have only risen since the Fed met in September, likely causing markets to conclude the Fed may remain patient before dropping its 'considerable' time formulation and moving to rate hikes,' analysts at Barclays wrote in a note to clients.

U.S. Treasury yields fell sharply as did the implied rates on Fed fund futures <0#FF:> with the market not seeing any appreciable rise in the Fed's target rate until around September 2015, from June 2015 previously.

With the U.S. dollar on the backfoot, commodity currencies continued to recover. The Australian dollar, for example, hit a two-week high of $0.8852 AUD=D4 and was well off last week's four-year low of $0.8642.

The Aussie's immediate fortunes hinge on Australia's employment data due at 8:30 p.m. EDT, although the report may have less impact on the currency this time given growing doubts about its accuracy.

Australia's statistics office surprised the market on Wednesday by saying it was radically revising seasonally adjusted employment figures for July and August due to an absence of seasonal patterns this year.

Analysts, who had forecast a sizeable fall of 30,000 jobs for September, now see an increase of 20,000 jobs instead.

(Editing by Grant McCool)

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