Dollar nurses losses on rate outlook, Aussie looks to RBA

By Stanley White

TOKYO (Reuters) - The dollar languished near multi-year lows against most major currencies on Tuesday as the Federal Reserve's new policy framework continued to fuel bets that U.S. rates will stay lower for longer than other countries.

The Australian dollar traded near a two-year high against the greenback ahead of a Reserve Bank of Australia (RBA) policy meeting later on Tuesday to gauge policymakers' views on the economy.

The yen was hemmed into a narrow range as politicians jockeyed to choose a new premier following Prime Minister Shinzo Abe's shock resignation last week.

The U.S. data calendar this week is full of important releases on manufacturing, durable goods, and employment, but positive results are unlikely to halt the dollar's decline due to strong expectations that rates will remain extremely low.

"The dollar is week not only against G10 currencies but also against emerging market currencies," said Minori Uchida, head of global market research at MUFG Bank in Tokyo.

"This shows the dollar is in a downtrend that will last for some time. Low rates and an excess supply of dollars are driving this move."

Against the euro (EUR=D3), the dollar stood at $1.1938 on Tuesday in Asia, close to its lowest since May 2018.

The British pound bought $1.3365, which is near its strongest level in almost a year.

The dollar was quoted at 0.9040 Swiss franc , just a shade above the lowest in more than five years.

The greenback held stead at 105.94 yen .

The Fed's historic switch last week to focusing more on average inflation and higher employment means it has leeway to keep benchmark rates lower for longer, which has encouraged dollar bears to sell the currency.

A decline in long-term Treasury yields on Monday highlights the strong headwinds facing the dollar.

Data due later on Tuesday are expected to show that U.S. manufacturing activity continued to expand in August, but this may not be enough to change the negative sentiment surrounding the dollar, analysts said.

Against a basket of six major currencies, the dollar index (=USD) slid on Monday to a two-year low at 91.989.

The yen was in focus as investors place bets on who will become Japan's new prime minister.

The largest faction in the ruling Liberal Democratic Party has thrown its support behind Yoshihide Suga, who currently serves as chief cabinet secretary. [L4N2FX52L]

Suga is a close ally of Abe and is likely to continue many of Abe's policies if he becomes the new prime minister.

The Australian dollar traded at $0.7381, close to its highest since August 2018.

The RBA is not expected make any major changes at a policy meeting on Tuesday, but traders want to see how central bankers assess the economic outlook as the country grapples with a recent increase in coronavirus cases.

The New Zealand dollar held steady at $0.6740, near its strongest in two years.

Traders will monitor the onshore yuan for any reaction to increasing tension between the United States and China.

The United States said on Monday it was establishing a new bilateral economic dialogue with Taiwan in a move that is sure to anger Beijing, because China claims Taiwan as its own territory.