FOREX-Dollar back in form, Aussie dives to 3-1/2-year low

Wed Jan 15, 2014 9:49pm EST
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* Shakeout complete, dollar index back at pre-payrolls highs

* Data restoring faith in U.S. recovery, CPI next in focus

* Aussie dives 1.2 pct to hit lowest since Aug 2010

* Canadian dollar also seen soft ahead of BoC meeting next week

By Ian Chua and Hideyuki Sano

SYDNEY/TOKYO, Jan 16 (Reuters) - The U.S. dollar held firm on Thursday, having returned to levels seen before last week's soft payrolls data as faith in the U.S. economic recovery was restored, while the Australian dollar slid to a 3-1/2-year low after a dismal local jobs report.

Upbeat U.S. numbers this week held out hope that Friday's surprisingly soft employment data was an anomaly and did not signal the economy had lost steam at the end of last year.

U.S. data on Wednesday showed producer prices recorded their largest gain in six months in December, yet there were few signs of any sustained price pressures. The figures came a day after U.S. retail sales rose and a core spending gauge posted a big jump.

Investors were encouraged to go long on the greenback, again betting the Federal Reserve can continue to unwind its massive bond-buying stimulus over 2014. They pushed the dollar index back to the highs seen last Friday.   Continued...