Dollar climbs before data, Indonesia in spotlight

By Eric Burroughs

TOKYO, Aug 30 (Reuters) - The dollar climbed against the euro and touched a three-week high against the yen on Tuesday, gaining strength ahead of a U.S. consumer confidence report that kicks off a busy week of economic data.

The dollar gained in part as the Indonesian rupiah tumbled more than 5 percent to a four-year low against the U.S. currency, putting pressure on currencies around Asia including the yen.

Record oil prices have strained Indonesia's finances by boosting the cost of fuel subsidies, spooking investors who have driven the rupiah sharply lower. As a result, worries about inflation have mounted and compounded the currency's slide.

But Indonesia's central bank has yet to raise interest rates to help support the battered rupiah. Indonesia's currency woes have rekindled memories of the Asian financial crisis of 1997/98.

In just two days the rupiah has shed more than 8 percent against the dollar, and analysts said the size of the move was enough to push down other regional currencies. The Taiwan dollar hit its lowest in almost 10 months.

"We have seen this aggressive rally in dollar/rupiah and it has given the dollar a bid tone across the board," said Richard Yetsenga, currency strategist at HSBC in Hong Kong.

The dollar rose as high as 111.02 yen, its strongest since Aug. 10, before easing to near 110.85 yen. The euro also rose a tad to 135.40 yen.

Disappointing data out of Japan did little to shake expectations for a sustained recovery. Spending by wage earner households fell in July and the unemployment rate rose. But the ratio of jobs to applicants improved to its best since 1992.

Against the dollar, the single currency inched lower to $1.2210 and was down more than a cent from its peak near $1.2350 in Asia on Monday.

Traders said talk of U.S. companies repatriating overseas profits as part of the Homeland Investment Act kept the euro under pressure.

END TO THE RANGES?

With summer holidays coming to an end this week, traders are hoping a series of U.S. data will give the market a new direction after major currencies have been trapped in ranges the past few weeks.

The data, including the Institute for Supply Management August factory index on Thursday and the payrolls report for the same month on Friday, are expected to show the economy is weathering the run-up in oil prices.

Before then, the Conference Board's consumer confidence survey at 1400 GMT will be watched for how much steep gasoline prices are hurting households. The main confidence index is forecast to fall to 101.5 in August from 103.2.

The dollar index -- its performance against a trade-weighted basket of six major currencies -- is down about 1 percent in August at 88.35 and nearly 3 percent from a 14-month high of 90.77 hit on July 8.

In the past few weeks the dollar index has shuffled between 86.76 and 88.90.

Traders are keeping an eye on oil prices after the strength of Hurricane Katrina sent crude prices soaring to a record high of $70.80. Crude prices rose back above $68 on Tuesday from a low of $66.30 the previous session.

The Federal Reserve's steady lifting of overnight rates to 3.5 percent had fuelled the U.S. currency's rally earlier in the year by widening the U.S. rate advantage over the euro and yen. The minutes of the Fed's Aug. 9 meeting are due at 1800 GMT.

But even as the central bank is poised to raise rates to 4 percent or 4.25 percent by the end of the year, the dollar has failed to capitalise as investors doubt the U.S. economy's prospects.

A variety of other events could shape the direction of currencies this month, including a visit by Chinese President Hu Jintao to Washington next Wednesday and elections in Japan and Germany on Sept. 11 and Sept. 18 respectively.

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source: reuters

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