FOREX-Aussie steadies after China move; euro inches higher

* Aussie dlr steadies as China rate move largely priced in

* Robust Chinese economy should underpin Aussie into 2011

* Euro and yen edge higher in thin year-end trading

(Changes dateline, releads, adds quote, previous TOKYO)

By Neal Armstrong

LONDON, Dec 27 (BestGrowthStock) – The Australian dollar steadied
on Monday, paring losses made after China’s central bank
raised rates at the weekend in a move seen largely priced in,
while other major currency pairs lacked momentum in quiet trade.

The euro edged higher against the dollar in low volume
trade with London markets shut Monday and Tuesday, while the
yen hit a three-week high versus the greenback.

While the market had been expecting Beijing to tighten
further, the timing was a surprise as there had been doubts
whether it would raise rates before the end of the year.
[ID:nTOE6BO014]

Saturday’s move by the Chinese central bank to raise
interest rates was the second in just over two months,
underscoring its desire to dampen domestic demand and get
price pressures under control.

Australia has benefited from strong Chinese demand for
iron ore and other commodities.

“There was a knee-jerk sell-off in the Aussie but
investors knew this China move was coming eventually.
Providing the Chinese data holds up in 2011, the Aussie should
stay supported,” said Geoffrey Yu, currency strategist at UBS.

The news knocked the Australian dollar as low as $0.9987
but it recouped its losses to trade flat in European
trade at $1.0035, not far from a six-week high of $1.0067 hit
last Thursday.

Some traders saw any dip in the Aussie as a good
bargain-hunting opportunity, as has been the case since early
2009.

“I guess the market is growing immune to China’s credit
tightening. Today the Aussie fell just because there aren’t
many players around,” said a trader at a Japanese brokerage
house.

EURO EDGES HIGHER

The euro was up around 0.2 percent versus the
dollar at $1.3145, holding above a three-week low of $1.3055
hit last week, but clouded by worries over debt refinancing
requirements of countries such as Spain and Portugal into the
new year.

Technical analysts said the outlook was brighter for the
single currency while it held above its 200-day moving average
at $1.3087.

The dollar slipped slightly against the Japanese yen,
touching a three-week low of 82.66 yen .

Although stuck in a range of 82.50 to 84.50 yen, the
dollar has been ticking down in the past couple of weeks as
holders of long positions have given up hopes of pushing it
beyond 85 yen.

“A sharp rise in U.S. bond yields earlier this month has
prompted many traders to bet on a rise in the dollar. But as
the dollar was unable to extend gains, traders have been
cutting long positions,” said Katsunori Kitakura, chief dealer
at Chuo Mitsui Trust Bank.

The dollar/yen rate has had a high correlation with U.S.
bond yields, particularly for two-year notes, but the
relationship has weakened this month.

Last week it broke down as the two-year U.S. yield rose
more than 5 basis points while the dollar fell 1 yen.

But many traders attribute that to illiquid year-end
market conditions and expect the correlation to return when
market players are back from holiday.

An auction of $35 billion in two-year U.S. Treasuries
later in the day will be closely watched for clues on where
U.S. bond yields may be headed after a volatile month in the
bond market.

(Additional reporting by Hideyuki Sano, editing by Miral
Fahmy)

FOREX-Aussie steadies after China move; euro inches higher