* Dollar index at 6-month lows, euro at 5-month highs
* Japan on holiday but fear of intervention lingers
* NZ dollar slides after shockingly weak GDP report
By Wayne Cole and Charlotte Cooper
SYDNEY/TOKYO, Sept 23 (Reuters) - The U.S. dollar was on
the defensive on Thursday as speculation that the Federal
Reserve will soon start printing more money drove down Treasury
yields and kept the greenback pinned near a five-month low on
the euro.
But in holiday-thinned Asian trade, one currency faring
worse was the New Zealand dollar as data showed the country's
economy grew just 0.2 percent last quarter, far below
expectations.
The kiwi <NZD=D4> fell 0.8 percent, backing off the
previous day's eight-month high on the greenback.
[]
With market players positioning for more quantitative
easing expected from the Federal Reserve later this year, the
U.S. dollar has been pummelled across the board this week and
was at six-month lows against a basket of currencies.
The dollar index <.DXY><=USD> broke support just above
80.00 on Wednesday, but was finding more support at 79.50-70,
with chartists expecting consolidation before it heads down.
"Lower U.S. yields are suggesting that the dollar is
heading lower overall," said Andrew Robinson, FX market
strategist at Saxo Bank in Singapore.
"There might be some minor profit-taking along the way, but
there are probably a lot of willing sellers of dollars on
rallies in the next few weeks."
Short-term Treasury yields <US2YT=RR> hit all-time lows of
just 0.407 percent on Wednesday, making it even cheaper to use
the dollar as a funding currency for carry trades.
The dollar index was steady at 79.82. It briefly breached
79.70, the 61.8 percent retracement of its move up from 74 in
November last year to its June high above 88.
If the breach does not prove a false break, some chartists
see a move down to last December's interim peak at about 78.45.
Against the yen, the dollar edged up 0.1 percent to 84.62
yen <JPY=>. It fell as far as 84.27 on Wednesday before the
danger of intervention helped it steady.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
PDF on Japan's yen intervention http://r.reuters.com/fac44p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Japanese markets were closed on Thursday, but there was
talk on Wednesday the Bank of Japan was checking with local
banks to see how they would be staffed, keeping alive the risk
of yen sales.
Tokyo intervened in the currency market for the first time
in six years on Sept. 15. It has not been seen selling yen
since, but the closer the dollar gets to its 15-year low of
82.87 yen, struck just before the Japanese authorities stepped
in, the more cautious the market becomes that intervention will
resume.
On the upside, the dollar/yen's 55-day moving average, now
at 85.73, has provided resistence in post-intervention price
action.
Japan's Prime Minister, Naoto Kan, meets President Barack
Obama later on Thursday, where intervention may be discussed.
EURO A WINNER FOR NOW, KIWI A LOSER
The euro has benefited almost by default, climbing to
$1.3441 <EUR=> on trading platform EBS on Wednesday, before
levelling off at $1.3394 for a gain of 2.6 percent in just two
sessions.
The rise is partly due to a squeeze in short euro
positions, with potential for a further gain, and well-received
bond auctions from peripheral euro area countries, David
Forrester at Barclays Capital in Singapore said in a client
note.
But it has also been helped by the fact that the Fed and
the Bank of England are considering expanding their
quantitative easing programmes and by Japan's yen intervention,
which could lead to a larger supply of short-term funds if left
unsterilised.
"Among the G4, the euro is attached to a central bank that
has yet to talk about more QE," Forrester wrote.
Traders note, however, that the euro zone has its own share
of problems, with strikes and protests around the region in
response to fiscal austerity measures. []
The euro is at the upper limit of its Bollinger bands on
the daily charts. The next target is $1.3510, the 50 percent
retracement of its fall from $1.5145 last November to its June
low of $1.1876.
Support is expected at $1.3334, its August high, and from
its 200-day moving average at $1.3210.
It hit its highest in more than a month against the yen on
Wednesday at 113.53 yen <EURJPY=R>, and touched a four-month
high against the British pound of 85.77 pence <EURGBP=D4>.
But the kiwi was firmly in reverse after the disappointing
GDP data further dimmed the chance of a hike in interest rates
for months to come.
"The bottom line is weaker than expected, weaker than the
Reserve Bank has pencilled in, pretty much confirming the bank
is on hold for the rest of this year at least," concluded Robin
Clements, an economist at UBS.
A trader said activity was mainly proprietary accounts with
some macro fund action. It was trading at $0.7327 <NZD=D4>
after climbing as high as $0.7418 on Wednesday, and slid to its
lowest in five months against the Australian dollar <AUDNZD=R>.
Interest rate markets are pricing in that cash rates in
Australia and New Zealand will stay at 1.5 percentage points
differential in favour of the Aussie for another year, although
the cross, at NZ$1.3030, faces resistance above NZ$1.32.
(Additional reporting by FX analysts Krishna Kumar in Sydney
and Rick Lloyd in Singapore; Editing by Ron Popeski)
