Dollar nurses losses, Aussie soars on jobs surprise

By Lisa Twaronite and Ian Chua

TOKYO/SYDNEY (Reuters) - The dollar struggled to take back some lost ground on Thursday after sharp losses from investors paring dollar-long positions, while the Australian dollar soared after an unexpected increase in jobs there caught investors by surprise.

The Australian dollar reached a high of $0.7333 , pulling away from the previous session's two-week low of $0.7169. It last stood at $0.7291, up 0.9 percent.

The Aussie's move "was fueled by the overnight dollar-selling story," said Bart Wakabayashi, head of forex at State Street in Tokyo.

"The fact that there seems to be an unwinding of dollar holdings at the moment gave it that extra push," he said.

Another notable mover was the New Zealand currency, which rallied after the Reserve Bank of New Zealand cut interest rates but said further easing should not be needed.

The kiwi dollar climbed to a high of $0.6782 , more than two full U.S. cents above the previous session's low of $0.6562.

The euro edged down about 0.1 percent to $1.1009 but remained above the $1.10 level, bolstered by a central banker's suggestion that markets had been expecting too much stimulus from the European Central Bank.

The common currency scaled a one-month peak of $1.1044 on Wednesday, extending last week's 2.8 percent short-covering rally after the ECB fell well short of delivering the aggressive easing many investors had anticipated.

Responding to accusations of ECB miscommunication, Governing Council member Ewald Nowotny on Wednesday said it was market analysts who failed to assess properly signals the institution was sending, and that they should have paid more attention to economic fundamentals.

The greenback edged up about 0.2 percent against its Japanese counterpart to 121.62 after suffering its biggest one-day drop in over three months against the yen, breaking out of the past month's 122.23-123.77 range.

Market participants said the yen benefited from its safe-haven status as risk appetites continued to be suppressed by jitters over a rout in commodity prices.

Oil had a choppy session but eventually ended lower for a fourth day after the market ignored an unexpected drawdown in U.S. crude stockpiles to focus on a build in distillates. [O/R]

With the euro and yen on the front foot, the dollar index <.DXY> slid to 97.223 on Wednesday, its lowest in over a month, and was last up about 0.1 percent at 97.454.

Analysts said investors appeared to be paring dollar-long positions ahead of next week's Federal Reserve policy review, at which an interest rate hike is widely anticipated.

"The extent of USD weakness over the past week reduces the danger of a post-Fed squeeze on USD longs and makes it less likely that the Fed Chair will dwell heavily on foreign exchange risks when she speaks at the press conference," analysts at BNP Paribas wrote in a note to clients.

Weaker oil prices helped the dollar hold its ground against the Canadian dollar, which languished near an 11-year trough of C$1.3623 per USD set on Tuesday. It last traded at C$1.3553.

China's yuan, meanwhile, weakened after the central bank set the midpoint at a more than 4-year low for the second day, a sign Beijing is quietly permitting the currency to depreciate after it was included in the International Monetary Fund's reserve basket.

Guided by the midpoint, the spot market opened at 6.4300 per dollar, its weakest open since Aug. 12. It was last at 6.4382.

(Editing by Richard Borsuk)

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