FOREX-Dollar steady against major rivals as Fed policy signals awaited
* Market seeks clarity on Fed's next policy step
* Aussie seen in the crosshairs against US dollar, euro
* Dollar index steady, holds above 4-month low
TOKYO, June 18 (Reuters) - The dollar steadied against its major counterparts in Asia on Wednesday as investors held their collective breath awaiting the outcome of the Federal Reserve's rate-setting meeting for signals on the future course of U.S. monetary policy. In what could well be a turning point for global markets, Fed Chairman Ben Bernanke has the chance to address speculation that the central bank will start tapering its asset-buying stimulus before the year is out. Fed policymakers will likely announce that they will continue to buy bonds at a monthly pace of $85 billion, while keeping their options open to scale back the program later this year if the U.S. labour market continues to improve.
The post-meeting Fed's policy statement is due at 1800 GMT with Bernanke's news conference to follow half an hour later. Last-minute position adjusting before the outcome of the Fed's two-day meeting has dominated this week's trade. "Positions have been squared off, closed orders have been filled, it's just settling into positions to move either way, which ever way is indicated by Mr. Bernanke," said Bart Wakabayashi, head of forex at State Street Global Markets in Tokyo. Many analysts suspect Bernanke will try to emphasise that tapering is not tightening and an actual rise in the funds rate is still a distant prospect, perhaps not until 2015. But he could also underscore his remarks last month, when he said the Fed could opt to slow its bond purchases in the next few meetings if the economy improves. With the traders ready to pounce on every nuance, the Fed chief's news conference is viewed as a test of his ability to calm the markets and give them some direction, Wakabayashi said.
"I think the market just wants a united message: tapering or not? The uncertainty there has led to some excess volatility, which has led to people pulling out of some markets," he added.
One result has been the sharp rise in longer-dated U.S. Treasury yields over the past six weeks. Over time this is expected to act as a support for the U.S. dollar, though in the near term heavy foreign selling of Treasuries has blunted the impact. Last month, the benchmark yield on 10-year U.S. notes jumped 46 basis points, its biggest one-month jump in nearly 2-1/2 years, according to Reuters data, on growing anticipation that the Fed will pare its purchases. In light of these expectations, some strategists said the Fed chief has little incentive to telegraph any further notions of scaling back its quantitative easing. "If I were Bernanke, I would not want to give a specific, solid indication to the market. He himself wants to keep QE, even as the market is pricing in the end of it," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. The dollar was a shade weaker against its Japanese counterpart, down about 0.1 percent at 95.26 yen. On the upside, 96.11 yen would mark the 23.6 percent Fibonacci retracement of the dollar's fall to 93.75 yen on June 13 from 103.74 yen On May 22. Support was seen at the Kijun line at 95.10 yen. The dollar held steady against the euro at $1.3392 after the single currency touched a four-month high of $1.3415 on Tuesday. Against a basket of currencies, the dollar was a fraction higher at 80.661, holding above a four-month low of 80.500 touched on Thursday.
Many investors seem to have concluded that an end to super-cheap money is inevitable and are positioning for that, and the run-up to the Fed meeting has seen risk tolerance evaporate. In the week through Monday, Citigroup's short-term positioning indicator showed either a reduction, flat positioning or a reversal for 20 out of the 32 currencies it tracks. The Australian dollar was in the crosshairs ahead of the Fed, not only as a commodity currency but also as a liquid proxy for emerging Asian markets, both of which would come under pressure on any hint of Fed tapering. Shorting the Aussie against the euro has been particularly popular, with the single currency climbing 15 percent since early April. The euro was fractionally lower at A$1.4105 on Wednesday, holding below a 22-month high of A$1.4237 hit on June 11. On the upside, its next target is the A$1.4340 peak of March 2011. Against its U.S. counterpart, the Aussie edged down 0.1 percent to $0.9488. The Aussie has shed 10 percent on the dollar since April, a move welcomed by the Reserve Bank of Australia (RBA) as a stimulus to the country's export sector.