FOREX-Dollar firms ahead of U.S. government shutdown deadline

Reuters

* Congress still in a deadlock as shutdown deadline drawscloser

* Yen pressured as Abe expected to raise sales tax, unveilstimulus

* Euro steady but Italian politics remain a major risk

* Aussie dollar firms ahead of RBA rate decision; China datadisappoints

By Lisa Twaronite and Ian Chua

TOKYO/SYDNEY, Oct 1 (Reuters) - The dollar firmed against abasket of other major currencies as well as the yen on Tuesdayas investors kept a close eye on Washington ahead of a midnightdeadline after which much of U.S. government could begin to shutdown.

The standoff comes a few weeks ahead of the next politicalbattle to raise the federal government's borrowing authority.Failure to do the latter by mid-October could result in ahistoric U.S. debt default that would threaten the world'sbiggest economy and reverberate around the globe.

The dollar index added about 0.1 percent to 80.291,lifted by the greenback's performance against its Japanesecounterpart. The dollar added 0.3 percent to 98.53 yen,moving away from a one-month low of 97.48 yen hit on Monday,according to Reuters data.

The yen remained under pressure, with Japan's Prime MinisterShinzo Abe expected to announce a hike in the national sales taxon Tuesday and also launch an economic stimulus package.

The Bank of Japan's quarterly "tankan" survey of businesssentiment earlier on Tuesday was stronger than expected,cementing the case for Abe to proceed with the planned sales taxhike next year.

"Overall, though, it seems that the increase in theconsumption tax is already decided, and the tankan results didnot contain anything to alter this decision," said Ayako Sera,market economist at Sumitomo Trust and Banking.

Downbeat data from China added to the appeal of mostsafe-haven currencies.

China's official Purchasing Managers' Index (PMI) stood at51.1 last month from August's 51.0, below expectations in aReuters poll for a rise to 51.5, as small firms struggled in theface of overcapacity and weak demand. That added to concerns anascent economic recovery there may be foundering.

The euro was steady after staging a rebound overnight onnews from Italy that as many as 20 senators from SilvioBerlusconi's centre-right party were ready to break away,dealing a blow to his plans to topple Prime Minister EnricoLetta's coalition government.

The common currency stood at $1.3524 after rallyingfrom Monday's trough of $1.3466, according to Reuters data, asinvestors scrambled to unwind bearish trades. Against the yen,the euro rose 0.2 percent to 133.08 from a three-weektrough of 131.33 yen plumbed on Monday.

The Australian dollar shrugged off the Chinese data and wasslightly higher at $0.9327, moving away from Monday'slow of $0.9280 on Monday. Trading was subdued as investorsawaited the Reserve Bank of Australia's (RBA) interest ratedecision at 0430 GMT.

The RBA is widely expected to keep its cash rate unchangedat a record low 2.5 percent. Some believe it may reintroduce anexplicit easing bias to help cap the Aussie dollar, hoping thata weaker currency will help spur other parts of the economy tooffset slower spending in the mining sector.

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