FOREX-Aussie hits 4-month high on RBA minutes, U.S. deal optimism


* RBA minutes help Australian dollar to 4-month high

* Signs of progress in U.S. debt talks ease default fear

* FX market still cautious as deal yet to be sealed

By Jessica Mortimer

LONDON, Oct 15 (Reuters) - The Australian dollar hit afour-month high against the U.S. dollar on Tuesday, lifted byReserve Bank minutes showing policymakers in no hurry to cutrates and optimism a U.S. deal to avert default would soon bereached.

U.S. Senate Majority Leader Harry Reid, a Democrat saidafter a day of talks on Monday with his Republican counterpart,Mitch McConnell that they had made "tremendous progress" andsuggested a deal could come as early as Tuesday.

The comments raised expectations final agreement could bereached before a Thursday deadline to raise the U.S. debtceiling and boosted riskier currencies such as the Aussie.

Moves in most major currencies were modest, however, asinvestors remained wary of further political bickering.

The Australian dollar rose 0.6 percent to $0.9547,its strongest since mid-June, after minutes showed no urgency tolower borrowing costs, while policymakers did not seem overlyconcerned by the currency's recent rise.

"The main trigger for the move in the Australian dollar wasthe minutes, which were slightly on the hawkish side," saidRichard Falkenhall, currency strategist at SEB.

The euro held steady at $1.3561, within itsrecent $1.35 to $1.36 trading range.

The dollar dropped 0.2 percent to 98.35 yen, havingearlier hit a two-week high of 98.71 yen. However. it remainedwell above a two-month low of 96.55 yen hit a week ago.

"If we get some kind of temporary resolution in the U.S. itwill have a small positive short-term impact on the dollar. Butin the medium term this is clearly dollar negative," SEB'sFalkenhall said.

The dollar index against a basket of currencies stood at80.31 , off Monday's low of 80.126 and above aneight-month low of 79.627 hit earlier this month, just after theU.S. government entered a partial shutdown.

Many uncertainties remain, however. The plan underdiscussion in the Senate seeks only to raise the debt ceilingthrough mid-February 2014 and to fund government operations tothe middle of January.

"This is unlikely to lead to a sustainable rally in thedollar and shares," said Masafumi Yamamoto, forex strategist atPraevidentia Strategy in Tokyo. "U.S. policy makers are justkicking the can and we will have another showdown in January.Under such circumstances, it would be difficult for the Fed toreduce its stimulus."

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