FOREX-Dollar discovers downsides of global growth, twin deficits

* Fed's Powell quashes tapering talk, Biden touts spending
* Euro breaks to nine-week peak, CAD to 3-year high
* U.S. GDP set to be strong, trade and budget deficits a
drag

By Wayne Cole
SYDNEY, April 29 (Reuters) - The dollar slid to nine-week
lows on Thursday as a doggedly dovish outlook from the U.S.
Federal Reserve and bold spending plans from the White House
gave a green light for the global reflation trade.
President Joe Biden's push for another $1.8 trillion in
spending also risked blowing out the U.S. budget and trade
deficits. The twin deficits have long been an Achilles heel for
the dollar. The euro made the most of the opportunity to hit its highest
since late February at $1.2148 EUR= , after cracking trendline
resistance around $1.2114. The break now opens the way to bull
targets at $1.2196 and $1.2242.
Fed Chair Jerome Powell did the dollar no favours by
quashing speculation about an early tapering of asset buying,
saying employment was still far short of target. "The risk is the Fed is very cautious and delays taking the
first steps to normalising policy," said Joseph Capurso, head of
international economics at CBA. "Low interest rates amid an
improving U.S. and global economy is a recipe for the dollar to
continue decreasing."
Even the outperformance of the U.S. economy had a sting in
the tail for the dollar as it sucked in imports and drove the
trade deficit to record highs in March.
"That surge implies the U.S. current account deficit was
around 4% of GDP in Q1, a significant weight on the USD in the
medium term," said Capurso.
It could also temper any reaction to an upbeat U.S. GDP
report for the first quarter due later on Thursday, where market
forecasts are for annualised growth of a whopping 6.1%.
The closely-watched Atlanta Fed's "GDP Now" estimate is that
GDP expanded by 7.9%, suggesting considerable upside risk.
The Fed's dovishness was in marked contrast to the Bank of
Canada which has already begun to taper its asset buying,
sending the dollar sliding to a three-year trough on the loonie
at C$1.2287 CAD= .
Another notable break lower came against the Norwegian
crown, where the dollar hit its lowest since October 2018 at
8.1460 crowns NOK= .
The crown has been carried higher by rising oil prices as
the global economic recovery boosts demand for commodities, a
trend that is also benefiting the Australian AUD=D3 and New
Zealand dollars NZD=D3 .
The dollar also shed much of the week's gain on the yen,
falling back to 108.55 JPY= from Wednesday's top of 109.07. A
holiday in Japan was keeping it contained in Asian hours.
Against a basket of currencies, the dollar was down at a
near nine-week low of 90.443 =USD , and a long way from the
rally peak of 93.439 hit at the end of March.