* Dollar climbs as oil prices fall back
* RBA holds rates but opens door to rate cuts
* Fed expected to keep rates steady, focus on statement
By Satomi Noguchi
TOKYO, Aug 5 (Reuters) - The dollar rose to a seven-week
high against a basket of major currencies on Tuesday, drawing
support from a sharp drop in oil and commodity prices that hit
the Australian dollar.
The Aussie extended its slide, striking a four-month low
against the U.S. currency after the Australian central bank on
Tuesday opened the door for cutting interest rates, prompting
investors to see a move as soon as September.
As expected, the Reserve Bank of Australia kept interest
rates on hold at 7.25 percent, but said in a statement that
scope to move towards less restrictive policy is increasing,
paving the way for future rate cuts. []
"The statement convinced everyone in the market the RBA is
highly likely to lower interest rates in the future rather than
boosting them," said Hiroshi Yoshida, a forex trader at Shinkin
Central Bank.
Before the statement was announced, some market participants
had bet the central bank's next move would be a rate hike given
stubbornly high inflationary pressures.
The dollar benefitted from a fall in oil and commodity
prices, as well as slower economies elsewhere that prompted
investors to sell other currencies against the U.S. unit.
The dollar index, which measures the U.S. currency's
performance against a basket of six currencies, rose 0.3 percent
to 73.685 <.DXY> and reached as high as 73.699, the highest
since mid-June.
Investors also braced for the Federal Reserve's policy
decision later in the day with the focus on the central bank's
post-meeting statement for clues on the monetary policy outlook.
"The key to the impact on the market is how the Fed's
statement will change expectations for a monetary tightening
outlook," said analysts at JPMorgan Chase Bank in Tokyo in a
note to clients.
Some upbeat U.S. economic data on Monday generated optimism
about the prospects for the broader economy while unexpected
surges in consumer prices raised the possibility of higher
interest rates by the end of the year.
The Fed is widely expected to keep benchmark interest rates
steady at 2.0 percent in the face of higher risks of inflation
and threats to economic growth.
The euro fell 0.3 percent to $1.5530 <EUR=>, a tad above a
six-week low around $1.5510 hit last week as investors awaited
more central bank meetings later this week including the Bank of
England and European Central Bank.
The dollar's performance against the euro has been closely
correlated to the direction of oil prices, with cheaper oil
generally supporting the U.S. currency.
U.S. crude oil futures <CLc1> fell around $1 to trade near a
three-month low of $119.50 hit the previous day.
Against the yen, the euro dropped 0.4 percent to 167.97 yen
<EURJPY=R>.
The dollar was steady at 108.20 yen <JPY=>, in sight of a
six-week high of 108.39 yen hit last week.
The Aussie dropped 0.6 percent to $0.9239 <AUD=D4> after
sliding as low as $0.9234, its lowest level since mid-April, as
hedge funds continued to liquidate long positions, traders said.
The New Zealand dollar was under pressure as Finance
Minister Michael Cullen said on Tuesday that the country is not
immune to the global financial storm. []
The New Zealand dollar slid 0.4 percent to $0.7259<NZD=D4>,
staying near 10-month lows struck around $0.7250 late last week.
(Additional reporting by Rika Otsuka; Editing by Chris
Gallagher)
