U.S. dollar range-bound while risk appetite boosts Australian dollar

[October 29, 2019]   By Saikat Chatterjee and Elizabeth Howcroft

LONDON (Reuters) - The euro was range-bound against the dollar Tuesday as investors awaited for the outcome of the Federal Reserve meeting on Wednesday, while risk-oriented currencies strengthened as hopes for an easing in Sino-U.S. trade tensions buoyed sentiment.

 U.S. 100 dollar, 50 euro, 20 pound and Ukrainian 500 hryvnia banknotes are seen in this picture illustration taken in Kiev, Ukraine, October 31, 2016. REUTERS/Valentyn Ogirenko/Illustration

Underpinning risk appetite in markets, there is heightened general optimism that Britain won't crash out of the European Union without a deal and the U.S. Federal Reserve will likely cut interest rates this week for a third time this year.

The U.S. dollar was "just bouncing around in ranges" ahead of Wednesday's Fed announcement, said Adam Cole, chief currency strategist at RBC Capital Markets.

Cole thinks further rate cuts, beyond the one expected on Wednesday, are overpriced.

"Unless the Fed guidance is explicitly that they're close to sanctioning another cut then we think that the market expectation is diminished, then dollar goes up," he said.

The euro was last down 0.1% at $1.1085 <EUR=EBS>, close to falling to a 12-day low. Cole expects the euro to be limited to the $1.1050-$1.1100 range.

Against a basket of currencies, <.DXY>, the dollar was up 0.1% at 97.84, having risen to a 12-day high of 97.93 earlier.

The Australian dollar climbed for a third consecutive session against the Swiss franc, reaching a six-week high of 0.6824 <AUDCHF=>. The currency pair, widely considered to be a barometer of risk sentiment in the currency markets, has risen by 2.4% so far this month, its biggest monthly rise since April.

Broader moves were modest, though, as caution tempered the mood. The New Zealand <NZD=D3> and the Canadian dollars <CAD=D3> edged slightly higher before erasing some of these gains.

U.S. President Donald Trump said on Monday a trade agreement with China looked to be ahead of schedule, without detailing the timing. Washington also said it was studying whether to extend tariff suspensions due to expire in December.

"Global risks remain but have shown signs of subsiding," Philip Wee, FX strategist at Singapore's DBS Bank said in a note.

The British pound, meanwhile, <GBP=D3> was flat on the day around $1.2860 after initial losses were erased when Labour leader Jeremy Corbyn said he would support an election. The U.K. parliament is due to debate a new election bill on Tuesday. Prime Minister Boris Johnson is widely expected to win the simple majority needed.

On Monday, Johnson failed to win the 2/3 majority necessary to call an election. The vote took place after the European Union agreed to a three-month flexible Brexit delay.

(Reporting by Saikat Chatterjee and Elizabeth Howcroft; Additional reporting by Tom Westbrook in HONG KONG; Editing by Giles Elgood and Chizu Nomiyama)

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