Dollar awaits Fed outcome, Canada's loonie bounced around by oil | Reuters

SYDNEY The U.S. dollar kept to the sidelines early on Wednesday with the market waiting for a interest rate steer from the Federal Reserve, while a fleeting rebound in oil prices sparked a short-covering rally in currencies like the Canadian dollar.

Weakness in the Swiss franc caught some attention, sparking talk the Swiss National Bank could have been selling. The euro jumped to a one-year high of 1.1059 francs EURCHF=R, while the greenback came within a whisker of 1.0200 francs CHF= - its highest in nearly two months.

The dollar index .DXY last stood at 99.061, nursing a 0.3 percent fall on Tuesday. It eased against the euro and sterling and fell sharply versus its Canadian peer.

The greenback managed to eke out a slim gain on the yen, which softened broadly as a rally on Wall Street dampened demand for the safe-haven Japanese currency.

Wednesday's main focus will be the outcome of the Fed's Jan 26-27 policy review. While the central bank is almost certain to keep interest rates unchanged, investors are keen to see its latest economic outlook given the turbulent start to global financial markets this year.

Yet, with Fed fund futures <0#FF:> implying just one rate hike this year, the risk is that anything the Fed says may be interpreted as hawkish. That could see the greenback bounce back, some traders said.

The Reserve Bank of New Zealand (RBNZ) meets on Thursday and the Bank of Japan (BOJ) on Friday.

"Currencies will continue to oscillate within recent ranges, but news from the FOMC, RBNZ, and BOJ could see a breakout," analysts at ANZ wrote in a note to clients.

The euro last stood at $1.0868 EUR=, pulling up from Monday's trough of $1.0789, although it remained well within this month's $1.0711-$1.0985 range.

The Canadian dollar stood out, rallying over 1 percent to as high as C$1.4045 CAD=D4 per USD. It was last at $1.4122.

Fuelling the loonie's rise was a four-percent-plus jump in oil prices as investors hoped OPEC and non-OPEC producers were inching closer to a deal to reduce output amid one of the biggest supply gluts in decades.

Currencies of other oil exporters such as the Norwegian crown EURNOK=RNOK= and Russian rouble RUB=RUBUTSTN=MCX also gained ground.

Early Wednesday, however, U.S. crude made a sudden reversal and shed 2.6 percent, underlining the uncertainty of the commodity's outlook.

Ahead of the Fed outcome is Australia's inflation data. A soft number could encourage some selling in the Aussie, which was flirting with 70 U.S. cents AUD=D4.

After several failed attempts to push the Aussie below the Jan. 15 low of $0.6827 - a near seven-year trough - the market has been testing the upside.

(Reporting by Ian Chua; Editing by Eric Meijer)

This story has not been edited by Firstpost staff and is generated by auto-feed.

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Updated Date: Jan 27, 2016 06:00:14 IST

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