Monday, March 21, 2016

FOREX-Dollar perks up with Fed hike seen back in play

* Two Fed officials advocate rate hike in H1

* Dollar index extends rebound from five-month trough

* Aussie keeps head down ahead of speech by RBA Governor

By Ian Chua

SYDNEY, March 22 The dollar held firm early on Tuesday, having extended its rebound for a second session after two Federal Reserve officials supported the case for a hike in interest rates sooner rather than later.

The dollar index last traded at 95.460, pulling further away from a five-month trough of 94.578 set on Friday.

The greenback popped back above 112.00 yen, recovering from a 16-1/2 month trough of 110.67 plumbed last week. The euro eased to $1.1234, recoiling from Thursday's one-month high of $1.1342.

Atlanta Fed President Dennis Lockhart said there was sufficient economic momentum to justify a further rate hike "possibly as early as the meeting scheduled for end of April".

San Francisco Federal Reserve Bank President John Williams told Market News International that April or June would be "potential times for a rate hike."

Their comments came a week after the Fed kept rates unchanged and cut in half the number of projected hikes to a mere two this year - a move seen by many as dovish.

While dollar bulls were heartened by the latest comments, the reaction in fed funds futures <0#FF:> was muted as some investors held back ahead of speeches by more dovish Fed officials including Chicago Fed President Charles Evans.

Investors are also keen to hear from Reserve Bank of Australia (RBA) Governor Glenn Stevens who will address a conference in Sydney later in the day.

"We suspect, however, the real focus for market participants will be on whether the Governor takes the opportunity to jawbone the currency," said Rodrigo Catril, FX strategist at National Australia Bank.

The Australian dollar has been on a tear recently, putting on nearly 6 U.S. cents in a few short weeks to reach an 8-1/2 month high of $0.7681. It has since drifted off to $0.7571.

The RBA has repeatedly said a weaker Aussie dollar would help bolster economic growth. But with every central bank around the world wanting a lower exchange rate, the RBA is keenly aware that not everyone can win. (Reporting by Ian Chua; Editing by Eric Meijer)

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