Dollar edges lower ahead of this week's payrolls, China survey

By Lisa Twaronite and Ian Chua

TOKYO/SYDNEY (Reuters) - The dollar pulled away from a one-month high against a basket of currencies on Monday as investors awaited a key Chinese factory survey and U.S. employment figures this week for clues on when the Federal Reserve will finally hike U.S. interest rates.

Thursday's China Caixin Purchasing Managers' Index (PMI) and U.S. non-farm payrolls on Friday could give the greenback a lift if upbeat results strengthen the case for a rate hike this year.

Continued improvement in U.S. employment conditions as well as signs of stabilization in the recently slowing Chinese economy could help convince the Fed to raise rates for the first time since 2006.

Until then, major currency pairs are likely to stick to recent ranges, market participants and strategists said.

"We have two big events this week. Chinese data now seems to be classified in the payrolls category of events," said Mitul Kotecha, head of Asia-Pacific FX strategy for Barclays in Singapore.

"There's another reason not to be doing anything until you see these two big numbers," he said.

Market activity is likely to wane ahead of China's week-long National Day holidays from Oct. 1, Kotecha added.

The dollar index <.DXY> last stood at 96.243, slightly lower and moving away from Friday's high of 96.700, its loftiest peak since Aug. 19.

Against the yen it fetched 120.38 , down about 0.2 percent and below Friday's high of 121.24 on Friday, its highest since Sept. 10.

The euro edged down about 0.1 percent to $1.1186 , after dropping as low as $1.1116 on Friday.

Speculators further reduced bullish bets on the U.S. dollar in the week ended Sept. 22 to their lowest since late July last year, according to Reuters calculations and the latest data from the Commodity Futures Trading Commission released on Friday. [IMM/FX]

Earlier in the month, the Federal Reserve delayed a long-anticipated rise in U.S. rates, sparking volatility in global markets. Since then, a string of Fed officials, including Janet Yellen herself last Thursday, has assured markets that the bank is still on track to normalize policy this year.

Kansas City Fed President Esther George on Friday said she believes the Fed should act soon so that it will "have the luxury" of being able keep rate hikes gradual.

Strong second quarter U.S. GDP data released on Friday added further evidence to support a Fed hike in 2015.

"With a further nine Fed speakers scheduled for this week," analysts at ANZ wrote in a note to clients, "Fed policy – and its impact on broader markets – will no doubt remain at the forefront of the markets' mind."

The consolidating dollar saw commodity currencies recover some ground. The Australian dollar traded at $0.7019 , having drifted up from last week's low of $0.6936 touched on Thursday.

Also this week, the IMF is expected to downgrade its global economic forecasts when it publishes updated figures, which could quell investors' risk appetite.

Market reaction was muted to two political events now unfolding overseas. In Europe, a big win for separatists at the weekend election in Catalonia could usher in a more unstable period for Spanish politics.

In the United States, the shock resignation of House Speaker John Boehner and his comments on Sunday that Congress will avoid a government shutdown this week potentially remove one source of investor anxiety.

(Editing by Eric Meijer and Richard Borsuk)

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