SINGAPORE: The dollar hit a one-week high against a basket of currencies on Wednesday, getting a boost as the Australian dollar dropped to an 11-week low after Australia posted a surprise trade deficit.
Latest data showed Australia posted a trade deficit of A$480 million in February compared to market expectations for a surplus of A$1.0 billion, adding fuel to expectations for Australia's central bank to cut interest rates in May.
The Australian dollar, which had been under pressure after the Reserve Bank of Australia on Tuesday opened the door for a rate cut next month, fell to as low as $1.0263, its lowest level since mid-January.
The disappointing Australian trade data spurred broad selling of currencies that belong to the Asia-Pacific region, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
"It looks like the market wants to make a try for the upside in dollar/Asia pairs and to test the downside in the Aussie as well as the kiwi," Okagawa said.
The Australian dollar was changing hands at $1.0279 , down 0.5 percent from late US trade on Tuesday. Its earlier drop stalled right near support at $1.0261, the 50 percent retracement of its November to February rally.
If that support is clearly breached, one possible support level is $1.0120, the 61.8 percent retracement of the same rally.
The drop in the Aussie spilled over into the euro and gave an added lift to the greenback, which had climbed the previous day when markets took comments from the US Federal Reserve as lessening the chances of more Fed monetary stimulus.
The dollar rose to as high as 79.586 against a basket of currencies, its highest level since March 26, and well above a one-month low of 78.664 hit the previous day.
The move higher followed the release of the Fed minutes of its March policy meeting which disappointed those hoping for a step toward further quantitative easing.
The statement sparked heavy selling in US Treasuries on Tuesday with the 10-year yield jumping more than 11 basis points on the day to around 2.293 percent.
After surging against the yen on Tuesday helped by the spike in Treasury yields, the dollar gave back a bit of ground against the Japanese currency, dipping 0.1 percent to 82.72 yen.
ECB MEETING, SPAIN
The euro slipped 0.3 percent to $1.3198.
One possible support area lies near $1.3150/60, which roughly coincides with the euro's 100-day moving average and the 61.8 percent retracement of its rally in the latter half of March.
The European Central Bank holds its April monetary meeting on Wednesday and, while rates are expected to remain unchanged at 1 percent, the market will be sensitive to any hint of further easing.
David Scutt, a trader at Arab Bank Australia is pessimistic given the euro zone's economic fundamentals and budget position.
"The euro has to go lower... The basis of buying euro on a risk-on day is simply not there anymore."
He said concerns on economic growth in the region could see the debt crisis resurface with the euro testing the January lows around $1.2626.
For now, the market's focus is on Spain, Europe's fourth-largest economy, whose borrowing costs are likely to jump at a bond auction later on Wednesday. The government plans to raise up to 3.5 billion euros in three bonds at 0840 GMT.
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