FOREX-Dollar left defenceless by dovish Fed, euro muscles higher

* Fed's Powell quashes tapering talk
* Euro breaks to nine-week peak, CAD to 3-year high
* U.S. GDP likely to be strong, but trade deficit a drag

By Wayne Cole
SYDNEY, April 29 (Reuters) - The dollar was on the defensive
near nine-week lows on Thursday as a decidedly dovish outlook
from the U.S. Federal Reserve gave a green light for the global
reflation trade.
The setback allowed the euro to crack major trendline
resistance at $1.2114 EUR= and power up to the highest since
late February at $1.2135. The break opened the way to bull
targets at $1.2196 and $1.2242.
Fed Chair Jerome Powell quashed speculation about an early
tapering of asset buying, saying it was "not time yet" to begin
talking of it, and employment was still a long way short of
where it needed to be. "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 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 dogged dovishness was a 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$1.2303 CAD= .
Another notable break lower came against the Norwegian
crown, where the dollar hit its lowest since October 2018 at
8.1645 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 108.45 JPY= from Wednesday's top of 109.07. A
holiday in Japan could keep it contained in Asian hours.
Against a basket of currencies, the dollar was down at a
near nine-week low of 90.554 =USD , and a long way from the
rally peak of 93.439 hit at the end of March.