SYDNEY (XFN-ASIA) - SYDNEY (XFN-ASIA) - The US dollar weakened in midmorning trade here with sentiment cautious ahead of tonight's release of the US PCE deflator for April, dealers said.
The inflation gauge is seen as key to the short term performance of the greenback, they said.
At 10.12 am (0012 GMT) here, the dollar was at 111.59 yen, down from 111.70 yen in late New York trade yesterday. The euro was at 1.2808 usd, up from 1.2805 usd in New York.
Dealers said the US dollar weakened overnight as an upward revision to first quarter GDP was still below what the market had been expecting. GDP for the quarter was revised up to annualised growth of 5.3 pct from an initial estimate of 4.8 pct, but was still below the market pick for a 5.8 pct rise.
Commonwealth Bank senior economist John Peters said the lower-than-expected revision of GDP and rising speculation the Bank of Japan will soon hike its key overnight rate, helped underpin gains in the yen.
Overnight the Japanese currency strengthened to 111.80 to the dollar from 112.75.
'Tonight's PCE price deflator for April will be critical to the US dollar's near-term prospects. An upside surprise would see the US dollar sharply higher, so this risk will likely stem further US dollar weakness today,' National Australia Bank currency strategists said.
Dealers said the market consensus for the core measure of the PCE deflator is a rise of 0.2 pct in April for an annual measure of 2.1 pct.
'While the Federal Reserve has no formal quantitative target for inflation, several Fed members have expressed the view that an upper bound comfort zone is 2.0 pct. Inflation is now pressing the Federal Reserve's patience,' the NAB currency strategists said.
Meanwhile, the chief equities economist of CommSec said he expects the US dollar to track sideways until the Federal Reserve meeting on June 29, as a result of mixed economic data recently.
'The economic data between now and then will be crucial, especially readings like the ISM manufacturing index next Thursday and non-farm payrolls on Friday,' he said.
Sydney 10.12 am (0012 GMT)
US dollar
yen 111.59
sfr 1.2164
Euro
usd 1.2808
stg 0.6831
yen 142.88
sfr 1.5581
Sterling
usd 1.8748
yen 209.11
sfr 2.2804
Australian dollar
usd 0.7607
stg 0.4057
yen 84.850
New Zealand dollar
usd 0.6401
paul.daniel@xfn.com
pd/mb
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