SYDNEY (Thomson Financial) - The US dollar was mixed in directionless trade Tuesday morning as currency markets remained subdued after the Labor Day holiday in the US.
The markets remain split over the pace of US rate cuts and their subsequent impact on global risk appetite following Federal Reserve chairman Ben Bernanke's vow on Friday to do what is necessary to protect the US economy from the credit crunch.
At 10.15 am (0015 GMT) the US dollar was quoted at 115.74 yen, down from 115.84 yen in late European trade Monday, while the euro was quoted at 1.3616 dollars, down from 1.3631.
Markets are also awaiting interest rate decisions this week from central banks, including the European Central Bank (ECB) and the Bank of England on Thursday. Both are expected to keep rates steady, while the Reserve Bank of Australia is expected to leave its cash target rate unchanged on Wednesday.
NAB Capital Markets currency strategists said with little impetus from US markets, the euro is struggling to trade above 1.3650 dollars now that the ECB is expected to leave rates unchanged at 4.00 percent on Thursday.
The strategists said the euro could test 1.3600 dollars, while stops have been reported below 1.3590 dollars.
"We expect the ECB will delay its well flagged rate hike until at least October, but hawkish comments from president Trichet at the accompanying press conference should limit any potential selling pressure on the euro," NAB Capital Markets analysts said in a note.
Trichet's likely use of the code-words "strong vigilance" will remind market participants that the ECB still has a tightening bias, said analysts.
"Barring further turmoil in the banking sector we expect a rate hike at the meeting on Oct 4," the note said..
John Noonan at Thomson IFR said trading lacks momentum due to the closure of US markets, keeping currencies range bound.
Noonan said Tuesday's release in the US of the August ISM manufacturing survey will be the next trigger for the dollar, though Friday's release of the August non-farm payrolls data will be more keenly watched.
Both sets of data are considered important in determining whether the Fed will cut its federal funds overnight rate after the Sept 18 policy meeting, as they cover the period when the subprime mortgage crisis began to have a wider impact, threatening the US economy.
On Friday, Bernanke said policymakers will pay especially close attention to the "timeliest indicators" as well as information gleaned from businesses and banks around the country.
Sydney 10.15 am (0015 GMT)
US dollar
115.74 yen
1.2086 sfr
Euro
1.3616 usd
157.57 yen
1.6457 sfr
0.6749 stg
Sterling
2.0171 usd
233.44 yen
2.4379 sfr
Australian dollar
0.8207 usd
0.4068 stg
95.020 yen
New Zealand dollar
0.7006 usd
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