Broker's notes: Dollar rebounds as gold dips

Dubai: Gold ticked lower on Tuesday as early bargain hunting subsided, but investors bet the US Federal Reserve would take further steps to ease monetary policy later in the day, boosting bullion's safe-haven appeal.

Markets expect that the Fed may announce plans for further quantitive easing to stimulate the economy, which could benefit gold.

This has the potential to lift gold towards the immediate resistance at 1210-1212 zones. The Fed's post-meeting statement is expected around 1815 GMT (10.15 PM UAE time).

US dollar

US dollar staged a rebound against major currencies on Tuesday as market participants pared short positions on looming uncertainty over whether the US Federal Reserve will start a new phase of quantitative easing to deal with a slowing economy.

We do not expect any changes to policy measures FOMC meeting, but the "extended period" language should be retained and Fed should acknowledge the recent weakness in economic data and the growth section is likely to be downgraded.

With the chances of further quantitative easing, looming in the background, market has postponed the chances of an initial hike in rates further down to Nov 2011 from Mar 2011. Given the uncertainty, speculators chose to trim their short US dollar positions, pulling the euro back to $1.3186 down 0.25 percent from $1.3225 in New York and a three-month peak of $1.3334 on Friday.

The pullback came despite upbeat euro zone data, with investor morale surging and German exports up strongly.

Australian dollar

The Australian dollar also dropped 0.4 percent to $0.9126 after National Australian Bank's monthly business condition survey showed business confidence dropped to its lowest in 14 months.

UK retail

UK retail sales slowed markedly in July sending the pound tumbling in the Asian session as currency traders became concerned about country's economic growth going forward. UK BRC Retail Sales monitor printed at 0.5 per cent in July versus 1.2 per cent in June.

The rate of growth in retail sales was less than half of the month prior. Sales of food and clothing increased, but sales of durable goods such as furniture declined sharply. The pound slipped 0.7 percent to $1.5790 after data

Japanese yen

The yen was the exception to the dollar's broad rebound on Tuesday, edging up slightly, due to repatriation by Japanese investors due to the redemption of US bonds. 

The Bank of Japan will also conclude its two-day policy meeting on Tuesday, although most market players do not expect the Japanese central bank to take action this time. 

However, some traders think a lack of action from the BOJ could push the yen higher, especially if the Fed does embark on new steps.

Japanese Finance Minister Yoshihiko Noda declined to comment on intervention. He also said the recent market moves are somewhat onesided, but that produced no market response.

The rupee

The Indian rupee fell to its lowest in nearly a week on Tuesday due to the dollar's rise overseas amid uncertainty whether the US Federal Reserve would signal more easing.

The dollar index against six majors was up around 0.5 per cent. Most other Asian currencies also traded lower against the dollar.

Source: Richcomm Global, Dubai, www.richcommglobal.com