Aussie slumps, U.S. dollar struggles for traction

[January 25, 2017]  By Patrick Graham

LONDON (Reuters) - The Aussie dollar was the big mover among the G10 group of major developed world currencies on Wednesday, hit by lower than expected inflation numbers in a market stalled by doubt over the rally in its U.S. counterpart.

Moves by Donald Trump on oil pipeline projects on Tuesday boosted U.S. equity markets and pulled the greenback back after the first fall in the index that measures its broader strength below 100 since early December.

But any faith in the new president's growth agenda has been countered by hints of concern from the new administration over the strength of the dollar and market worries about Trump’s protectionist leanings.

The U.S. dollar was just under 0.2 percent lower against the yen on the day and 0.1 percent weaker against the basket in early European deals.

The Aussie dollar was as much as 0.8 percent lower after both quarterly and annual inflation undershot expectations, rekindling hopes of one more cut in interest rates.

"It is not so surprising to see a lower inflation number get a lot more attention," said Barclays strategist Hamish Pepper.

"The risk is that the RBA will have to do more with policy to generate inflation. Despite the fact that they don't sound particularly panicked, they are also probably a bit disappointed by how the non-mining sector has not picked up."

Australian dollar and U.S. dollar denominations are shown in a photo illustration at a currency exchange in Sydney, Australia, June 7, 2016. REUTERS/Jason Reed

The Aussie, which has been rallying along with equity markets since early November but is still well short of last year's highs, traded at $0.7518 at 0853 GMT.

The euro was steady at $1.0726  while sterling, buffeted again by concerns over Brexit in the last 24 hours, inched back above $1.25.

Analysts seem deeply divided over the immediate prospects of the dollar adding to the stellar gains it racked up after Trump's election in November.

The greenback has fallen 3 percent against the yen and 2 percent against the euro so far in January, in what most so far see as a correction to its broader rally. But there are doubts about when the rally will get going again.

"We retain our view that the dollar is on a longer-term uptrend. But for the moment, scepticism towards the Trump presidency retains the upper hand," said Shusuke Yamada, chief Japan FX strategist at BOA Merrill Lynch.

(Additional reporting by Shinichi Saoshiro in TOKYO; Editing by Hugh Lawson)

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