FOREX-Dollar on defensive as market eyes Fed stimulus
* USD under pressure, more stimulus from Fed expected
* Aussie dollar hits three-month highs vs USD
* USD holds ground vs yen as BOJ easing also eyed
SYDNEY, Dec 12 (Reuters) - The dollar wallowed at three-month lows against the Australian currency and remained broadly under pressure on Wednesday as markets geared up for more stimulus from the Federal Reserve.
The dollar index fell 0.3 percent to 80.061 as the euro popped back above $1.3000, pulling away from a two-week low around $1.2876 plumbed Friday.
The single currency was last at $1.30030, having retraced 50 percent of its Dec. 5-7 fall from $1.3127 to $1.2876.
The Australian dollar jumped to $1.0533, reaching its highest since mid-September. Against the yen, though, the greenback held its ground at 82.51 as the Bank of Japan is expected to expand its own asset-buying and lending programme at next week's policy meeting.
Weakness in Japan's October machinery orders due at 2350 GMT will only serve to firm up that view. In September, orders plunged more than expected, in another sign the world's third-largest economy was slipping into recession.
The Fed, which ends its two-day policy meeting later on Wednesday, is expected to replace its expiring 'Operation Twist' programme with a fresh round of outright Treasury purchases.
Many economists believe the U.S. central bank will announce monthly debt purchases of $45 billion, although there is always a risk that it'll do more, an outcome that would further lessen the appeal of the greenback.
"Although the view that the Fed will shift to outright Treasury purchases is now very widely shared by market participants, we do not believe it has been fully reflected into markets or in positioning," said Vassili Serebriakov, a strategist at BNP Paribas.
"Accordingly, dollar weakness is highly likely should the Fed shift to outright U.S. Treasury purchases."
Markets largely shrugged off disappointing news on the U.S. 'fiscal cliff' talks, with U.S. House of Representatives Speaker John Boehner offering no concrete signs of progress. But he remained hopeful that both sides would reach an agreement by the year-end deadline.
For Australian dollar bulls, a speech by Reserve Bank of Australia (RBA) Governor Glenn Stevens in Bangkok at 0430 GMT will be closely watched.
Last week, the RBA cut its cash rate to a record-matching low 3.0 percent and markets have priced another 50 basis points worth of easing next year.