Dollar regains mojo as 2015 Fed hike view stays intact

By Ian Chua

SYDNEY (Reuters) - The greenback hovered at its highest in nearly two weeks early on Tuesday as dollar bulls appeared to recover from their disappointment over the Federal Reserve's decision last week to delay a hike in interest rates.

Traders said quarter-end dollar demand, rising Treasury yields and a string of comments from Fed officials that kept alive expectations for a rate hike later this year were behind the quick turnaround.

In contrast, expectations for the other major central banks including the European Central Bank and Bank of Japan are that they could possibly expand their stimulus program.

As a result, the dollar index <.DXY> was back near 96.000, having rebounded about 2 percent from Friday's trough of 94.063.

Against the yen, the greenback fetched 120.50 , well off a low of 119.04 set on Friday. The euro slid to $1.1185 , from last week's peak of $1.1460.

"The currency market focused on rising U.S. yields and the parade of FOMC hawks who left the door open to a 2015 hike. This drove the USD to rally broadly," analysts at ANZ wrote in a note to clients.

Atlanta Fed President Dennis Lockhart on Monday said last week's decision was largely a "risk management" exercise to be sure recent market volatility would not become a drag on the U.S. economy. He said he still expects the Fed to hike rates later this year.

The market is now waiting to hear from Fed Chair Janet Yellen herself, who is due to speak on Thursday. Yellen is facing growing pressure from her colleagues and global investors to clarify where the world's biggest central bank is heading and how it is making its decisions.

With the dollar on a solid rebound, even commodity currencies found it hard to keep up despite a more conducive global environment of higher commodity prices and stronger equity markets.

The Australian dollar slipped to $0.7130 , continuing to retreat from Friday's high of $0.7280, while its New Zealand peer was back at $0.6325 , off last week's peak of $0.6458.

Ahead of Yellen's speech, a flash survey on China's manufacturing sector on Wednesday will take center stage. Given worries about global growth and a weaker Chinese economy, this report will set the tone for markets.

Japanese financial markets remain shut for a public holiday. They reopen on Thursday.

(Reporting by Ian Chua; Editing by Eric Meijer)

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