FOREX-Dollar buoyed by upbeat U.S. economic data; Aussie falls

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Eimi Yamamitsu
TOKYO, Sept 2 (Reuters) - The dollar bounced off two-year
lows on Wednesday as U.S. data pointed to a firm manufacturing
activity, while the euro retreated from its highest levels since
2018 on profit-taking.
Economic data published on Tuesday showed U.S. manufacturing
activity accelerated to a nearly two-year high in August amid a
surge in new orders, with the reading from the Institute for
Supply Management highest level since November 2018. The U.S. data followed similarly upbeat Chinese and European
manufacturing indicators. Analysts said that an increase in pent-up demand has
contributed to the rise in the greenback.
"In hindsight, it was a strong data," said Rikiya Takebe,
senior strategist at Okasan Online Securities.
"But when you look closely into the eighteen industries, not
all of them registered growth in employment... there wasn't an
improvement in employment overall," he said.
The dollar index =USD inched up 0.16% at 92.390, having
hit its lowest since April 2018 of 91.737.
Separate data from the Australian Bureau of Statistics
showed Australia suffered its worst economic fall in quarterly
domestic product on record last quarter as the coronavirus
pushed the country into recession. Following the data announcement, the Australian dollar
AUD=D3 fell 0.5% to $0.7348 before retracing some losses at
$0.73560.
The greenback has been declining since last week, down about
1%, after the Federal Reserve announced it would focus more on
average inflation and higher employment. With the Fed's shift in
policy having leeway to keep U.S. interest rates lower for
longer, it has encouraged traders to sell the currency.
That view was reinforced on Tuesday as Fed Governor Lael
Brainard said the central bank would need to roll out more
stimulus to help the economy overcome the coronavirus and fulfil
the Fed's new pledge. U.S. Treasury yields fell following the speech as additional
stimulus would likely involve more aggressive bond-buying.
The euro benefited from the initial dollar sell-off, as it
rose high as $1.2014 EUR=EBS on Tuesday, its highest since May
2018.
The common currency later reversed those gains to sit at
$1.19085.
"After hitting the 1.2 level, the euro fell due to the
crowded long posing," said Makoto Noji, chief FX strategist at
SMBC Nikko.
"For a while, the market talked about how the Fed's new
policy weakened the dollar, but the flow of traders buying back
the dollar will probably become strong for a week or two," he
said.
Against the Japanese yen JPY=EBS , the dollar was little
changed at 106.075 yen.
Japan's Liberal Diplomatic Party formally decided to hold
election of Sept. 14, sources told Reuters, but analysts say the
market has already priced in the risk. "The sell-off that followed after (Shinzo Abe's) surprise
resignation announcement is over, and with the market assuming
(Chief Cabinet Secretary Yoshihide) Suga will win the election,
there isn't much factors left to consider," said Mitsuo
Imaizumi, chief FX strategist at Daiwa Securities.
Also supporting a rebound in the greenback, White House
chief of staff Mark Meadows said Senate Republicans are likely
to bring up a targeted COVID-19 relief bill next week.
However, U.S. House Speaker Nancy Pelosi said in a statement
after a phone call with Treasury Secretary Steven Mnuchin on
Tuesday that "serious differences" remain between Democrats and
the White House over coronavirus relief legislation.
Among antipodean currencies, the New Zealand dollar NZD=D3
added 0.3% at $0.6780 after the Reserve bank of New Zealand
governor Adrian Orr said the central bank's actions have been
effective in broadly lowering interest rates. Elsewhere in the market, Sterling GBP=D3 traded at 1.3379,
just below last year's high that followed the 2019 election of
1.3516.
The Chinese yuan CNH=EBS was little changed, last down
0.08% in offshore markets to 6.8305.