LONDON: Strong China trade data lifted the Australian dollar and helped drive the US dollar to a seven-week low on Thursday against a backdrop of uncertainty over when the Federal Reserve will begin reducing stimulus.
The dollar index, which measures the currency's value against a basket of major currencies, fell 0.15 percent to 81.152, having hit 81.087, its lowest since mid-June. It has lost 4 percent since hitting a three-year high a month ago.
Although most analysts expect the dollar to resume gains towards the end of the year, recent inconclusive economic data and diverse comments from Fed policymakers have raised doubts over when and how fast it will reduce asset purchases.
Forecast-beating Chinese trade data, which could indicate the world's second-biggest economy was stabilising after more than two years of slowing growth, also buoyed growth-linked and riskier currencies against the US dollar.
"Risk appetite got a boost overnight from the China trade data," said Ioan Smith, Managing Director, Knight Capital Group Europe, adding that a drop in dollar/yen helped drive euro/dollar higher.
"Follow through was limited which has kept the dollar within a tight range. The calendar is quite sparse today leaving the emphasis on short-term technical driven moves and risk assets."
The Australian dollar, which tends to benefit from upbeat Chinese data because China is the main destination for Australia's raw materials exports, rose 0.8 percent to $0.9073.
The euro was up 0.15 percent at $1.3358, having hit a seven-week high of $1.3370, helped by figures showing an above-forecast German trade surplus and Wednesday's much stronger-than-expected German factory data.
"There are uncertainties about the timing of Fed tapering, whether it will be September or later, and about how fast they will start reducing their bond-buying programme," said Niels Christensen, currency strategist at Nordea in Copenhagen.
"The Australian dollar is firmer on the back of China data, sterling is doing quite well on yesterday's message from the Bank of England Inflation Report, dollar/yen is maintaining a downward trend, and all this is giving headwinds to the dollar."
The dollar hit a seven-week low of 96.085 yen, maintaining its recent downward trend, and was last at 96.33 yen. The yen showed no immediate reaction after the Bank of Japan kept its policy on hold, as expected.
Some Fed policymakers have suggested this week the central bank could scale back easing as soon as September, but this will depend on a further improvement in the jobs market.
However, last Friday's weaker-than-expected US jobs data introduced further uncertainty.
Sterling rose 0.1 percent to $1.5506, near a seven-week peak of $1.5534 hit on Wednesday after "forward guidance" on monetary policy from the Bank of England prompted investors to bring forward expectations of when interest rates will rise.
The BoE said rates would not rise until unemployment fell to 7 percent, something it saw as unlikely for at least three years. But the market took the view an improving UK economy may see rates rise sooner than previously thought.
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