FOREX-Expectations of rising rates to propel euro higher

* Euro rallies vs dollar, takes out $1.4450 resistance

* Australian dollar at new post-float high

* U.S. dollar weighed by looming government shutdown

* Bets against yen biggest in nearly a year – CFTC
(Adds graphics, IMM data, adds details, updates prices)

By Wanfeng Zhou

NEW YORK, April 8 (Reuters) – Expectations interest-rate
differentials will widen further in Europe’s favor should buoy
the euro against the dollar next week, while investors will
closely watch U.S. inflation data that could help shape Federal
Reserve monetary policy.

The euro rose to a 15-month peak versus the dollar on
Friday, on pace for a gain of 1.7 percent this week. The
prospect of a U.S. government shutdown, which would idle about
800,000 federal government workers and put a crimp in the
economic recovery, weighed on the dollar.

The European Central Bank raised rates by 25 basis points
on Thursday, its first hike since the 2008 financial crisis,
and signaled it’s ready to tighten further if needed.
Expectations of higher rates boosted the euro even as Portugal
became the third euro zone country to request a bailout.

“The market is ignoring all of Europe’s fiscal and banking
troubles and trading off a single indicator — interest
differentials,” said Avery Shenfeld, chief economist at CIBC
World Markets in Toronto.

The euro was last up 1.1 percent at $1.4459 (EUR=: Quote, Profile, Research),
climbing to a session high of $1.4465 on Reuters data after
taking out reported option barriers at $1.4450. The level also
marks the 61.8 percent retracement of the move from the euro’s
record high above $1.6000 hit in 2008 to the 2010 low of
$1.1876.

Traders cited further upside targets of $1.4500 and the
January 2010 high around $1.4580.

“At this point, the euro has been on a one-way ticket north
and pretty easily could break $1.45 next week,” said John
Doyle, strategist at Tempus Consulting in Washington.
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U.S. dollar during previous government shutdowns:

http://r.reuters.com/duw88r

For a chart on the euro: http://r.reuters.com/gut88r

ECB in graphics: http://r.reuters.com/kah88r

The euro zone’s debt struggle: http://r.reuters.com/hyb65p
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U.S. INFLATION

The dollar was pressured as the White House and Congress
worked frantically to break a U.S. budget deadlock by the end
of the day in order to avoid a government shutdown. For more
see [ID:nN08144565].

A shutdown would be far-reaching, since among other actions
it would stop payment of government suppliers and possibly
close private enterprises reliant on government operations.

The lost wages and spending would ripple through to other
areas of the economy at a time of uncertain economic growth,
though some analysts noted that any impact would be short-lived
and government spending for the year would be the same.

Investors will watch March U.S. retail sales data next week
to gauge the strength of consumer spending. A round of
inflation readings, including consumer and producer prices,
will also be scrutinized and a pick-up in inflationary
pressures could see investors bring forward expectations of
U.S. rate hikes, which would lift the dollar (ECI/US: Quote, Profile, Research).

Against the yen, the dollar slipped 0.1 percent to 84.76
(JPY=: Quote, Profile, Research), still within striking distance of a six-month high hit
this week. Market players said the yen could weaken further on
expectations the Bank of Japan will keep monetary policy
stimulative for much longer following the country’s massive
earthquake and nuclear crisis.

Speculators cut bets in favor of the yen this week, going
short the Japanese currency by the biggest margin in nearly a
year, data showed on Friday, and built up a record long
position in the Australian dollar. [ID:nN08299492]

The data, released by the Commodity and Futures Trading
Commission, also showed net short U.S. dollar position fell
slightly to $25.18 billion in the week to April 5.

The Australian dollar rose to $1.0552 (AUD=D4: Quote, Profile, Research), its highest
level versus the greenback since it was floated in December
1983. The aussie has benefited from strong domestic economic
growth, staving off the malaise of the rest of the developed
world in recent years, fueled in large part by exports of raw
materials to China.
(Additional reporting by Nick Olivari; Editing by James
Dalgleish)

FOREX-Expectations of rising rates to propel euro higher