* U.S. consumer confidence at 3-month high supports dollar
* Dollar/yen hits two-month highs, U.S. yields a factor
* Aussie, Kiwi dollars rise to near 2-week highs
(Adds quote, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 29 (Reuters) - The dollar posted gains
against most major currencies on Tuesday, climbing to a
two-month peak versus the yen, boosted by a report showing a
rise in U.S. consumer confidence this month.
Some traders also attributed the dollar's gains to year-end
buying by asset managers as they square off their positions,
with flows going mostly into U.S. Treasuries.
But analysts warned against reading too much into intraday
movements because in thin liquidity such as Tuesday's, a few
large trades can completely alter the direction.
U.S. data released on Tuesday, including a rise in U.S.
consumer confidence in December to a three-month high,
certainly helped the dollar's cause, analysts said. For an
economic wrap, click on [].
"We had a decent consumer confidence report and that helped
the dollar. For about a month now, we've had this dynamic where
good economic news is starting to support the dollar," said
Boris Schlossberg, director of currency research at GFT in New
York.
"The assumption now is that if we continue to have positive
news out of the U.S., the Fed could start its hiking cycle next
year and that's dollar-positive. And when you have thin market
conditions, it doesn't take much to move this market."
In late afternoon trading, the euro was down 0.2 percent at
$1.4354 <EUR=>, well off the session peak of $1.4458.
The ICE Futures' dollar index, a non-traded gauge of the
greenback's performance against six major currencies, rose 0.3
percent to 77.843 <.DXY>, not far from a 3-1/2-month high
touched last week.
Against the yen, the dollar rose 0.5 percent to 92.00 yen
<JPY=>, with a session high of 92.07 yen, a two-month peak.
Traders said upward pressure on long-term Treasury yields
has provided support to the dollar against the yen after U.S.
government bonds traded lower on Monday and pushed the
benchmark 10-year note yield to its highest level in nearly
five months. []
DOLLAR/YEN-U.S. YIELD CORRELATION
The correlation between dollar/yen and 10-year U.S.
Treasury yields remained robust at 94 percent on Tuesday,
according to Reuters data. U.S. Treasury yields have risen
sharply this month and are likely to see a further increase
this week given Treasury supply of around $118 billion in a
thin market.
The dollar/yen pair has recently become more sensitive to
Treasury yields and interest rate expectations because the pair
has lagged major crosses during this month's rally in the
greenback, when investors started to price in a stronger U.S.
recovery.
Higher-yielding currencies such as the Australian dollar,
up earlier in the session when improved risk appetite was the
central trading theme, held onto gains but were off session
peaks.
In late afternoon trading, the Australian dollar was up 0.8
percent against the U.S. dollar at US$0.8940 <AUD=>, after
earlier touching a nearly two-week peak at US$0.8993.
The New Zealand dollar <NZD=> surged 1.4 percent to
US$0.7182, after earlier rising to US$0.7212, also its highest
in nearly two weeks.
Traders said the U.S. currency may struggle to rise much
further after speculators have finished covering short dollar
positions. Data on Monday showed speculators were long in the
U.S. currency for the first time since May, ending 32 straight
weeks of short dollar positions. [].
Michael Woolfolk, senior currency strategist at Bank of New
York Mellon, said aside from speculative positioning, he
believes investors would likely use the U.S. dollar once again
as a funding currency in carry trades into higher-yielding
assets.
He pointed out that risk appetite remained strong with the
Dow Jones index well above 10,000 points and the Australian
dollar/yen pair trading above 80 yen.
The Aussie dollar/yen trade is typically viewed as a proxy
for risk appetite, rising when investors feel more confident
about economic prospects.
(Additional reporting by Nick Olivari; Editing by Dan
Grebler)
