FOREX-Dollar rallies on upbeat US data, but gains likely limited

by on October 3, 2012 8:20 pm BST

Wed Oct 3, 2012 4:20pm EDT

* ADP report showed U.S. added 162,000 private-sector jobs
    * Investors uncertain about Spanish bailout, euro slips
    * U.S. job outlook still gloomy, dollar upside limited

    By Steven C. Johnson
    NEW YORK, Oct 3 (Reuters) - The dollar rose on Wednesday
after data showed U.S. companies added more jobs than expected
last month, boosting some hopes that the health of the world's
largest economy was improving.
    A separate report showing the vast U.S. services sector
gained momentum in September also helped lift the greenback to a
two-week high against the yen and buoyed it against sterling and
commodity-sensitive currencies from Australia and New Zealand.
    Few analysts, however, were ready to say the U.S. job market
had improved enough to reduce the jobless rate significantly.
That means the Federal Reserve is likely to flood the market
with dollars for years to come, capping the currency's gains.
    The ADP National Employment Report showed the private sector
added 162,000 jobs last month. But the data has proved a poor
indicator of late in predicting job gains in the more
comprehensive government payrolls report, which is due Friday.
    "ADP could foreshadow a good number, but even if we exceed
expectations, job creation will still be miserable and will give
the Fed plenty of scope to keep easing," said John Doyle,
currency strategist at Tempus Consulting in Washington.
    Economists polled by Reuters expect Friday's data to show
the economy added 113,000 jobs last month while the unemployment
rate rose to a tenth of a percent to 8.2 percent.
    The dollar was last up 0.5 percent at 78.50 yen after
hitting its highest level since Sept. 19 following the data.
    Strategists tied the move partly to Japan's new finance
minister saying he was ready to take steps to thwart a strong
yen, which has hurt exports and the economy. 
    Jamie Coleman, currency strategist at Forexlive.com in
Boston, cited bankers as he noted an uptick in speculative
demand for dollar/yen on an improving technical backdrop.
    "It lulls you to sleep when the same person says these
things over and over again, but when a new minister comes in,
people tend to listen more," Doyle said. He added that he did
not see the dollar soon making a run at the 80 yen level.
    The euro slipped 0.1 percent to $1.2902, as
uncertainty grew about whether and when Spain would seek
emergency aid to stem its debt crisis. Prime Minister Mariano
Rajoy quashed speculation that his government would apply for a
bailout as soon as this weekend. 
    Data suggesting the 17-country euro zone likely fell back
into recession in the third quarter also hurt the currency ahead
of Thursday's European Central Bank meeting. 
    Strategists expect Spain to ultimately request a bailout,
which would free the European Central Bank to buy Spanish
government bonds to lower the government's borrowing costs. Such
a move was expected to spark only mild euro gains.
    "The bailout is priced into the market, so an official
request would only give the euro a short-term boost rather than
see it trend higher against the dollar," said Gareth Sylvester,
senior currency strategist at Klarity FX in San Francisco.
    Some traders said the currency could soon test $1.2968, a
level hit a week ago, before hitting $1.30.
    Sterling fell 0.3 percent to $1.6080 ahead of a
Bank of England meeting on Thursday.  
    The Australian dollar fell 0.6 percent to $1.0212,
weighed down by stronger U.S. data and a report showing
Australia posted its widest trade deficit in 3-1/2 years as
falling iron ore and coal prices dented export earnings.
    The Aussie was also hurt by expectations that interest rates
may fall further after the Reserve Bank of Australia on Tuesday
cut its cash rate to 3.25 percent, the lowest in three years.
    Against the Canadian dollar, the U.S. dollar hit an almost
one-month high of C$0.9884, while the New Zealand dollar
 fell 1.1 percent to $0.8126.