Forex - US dollar mixed Sydney morning; euro up strong data, hawkish talk

SYDNEY (Thomson Financial) - The US dollar was trading mixed against major currencies on Friday morning in Sydney, caught between strong European data and increased risk appetite which has seen the greenback rise against the yen as carry traders return to the market.

The possibility of a further rate cut by the Federal Reserve on January 30 on top of this week's surprise three-quarter percentage point cut is giving support to the euro, along with a stronger than expected German IFO survey and hawkish comments from European Central Bank (ECB) officials.

At 9.45 am (2245 GMT), the dollar was up at 107.18 yen from 106.85 in late New York trade while the euro had risen to 1.4756 dollars from 1.4745 in late New York trade.

"The market had been pricing in a rate cut by the ECB but hawkish comments by ECB officials makes it clear they're worried about inflation so that that's giving support to the euro," said Sally Auld, a senior currency strategist at ANZ Investment Bank.

ECB council member Axel Weber took a dismissive tone on a euro-zone rate cut Thursday, compounding ECB President Jean-Claude Trichet's statement on Wednesday, which suggested he was sticking with his anti-inflation stance and would not follow the Fed in cutting rates.

Auld said the comments served to highlight the widening interest rate differential between the US and the euro-zone.

She said the yen is losing some support as equity markets around the world start to recover from steep losses seen at the start of the week.

"The yen is the currency of choice when there's uncertainty so it's a touch weaker against the dollar though broadly steady," Auld said.

She said there's also more interest in carry trades to the benefit of the Australian dollar, which has moved above 94 yen from around 90 yen earlier in the week.

John Noonan at Thomson IFR said the world's financial markets have radically changed since the start of the week when "doom and gloom" dominated all markets.

He said the emergency three-quarter percentage point Fed rate cut proved to be a circuit breaker for the ailing equity markets.

That move has been backed up with what are perceived to be genuine efforts from US lawmakers to deal with the specific problems facing the US economy such as consumer spending, mortgage stress and the prospect of more downgrades of bond insurers.

"While these efforts may not head off a US recession they may ensure that a US slowdown will be shallow and short-lived and not put a severe dent into the global growth outlook," Noonan said.

For foreign exchange markets, Noonan said that means more risk appetite which, along with improving commodity prices, is giving support to the Australian dollar.

"If this more buoyant mood continues to prevail it would provide enormous support for the Australian dollar," Noonan said.