Dollar holds ground ahead of CPI, Aussie wallows near 4-month low

By Kevin Buckland

TOKYO (Reuters) - The dollar traded close to a two-week high versus the yen on Wednesday ahead of a highly anticipated reading of U.S. inflation that could provide clues on the pace of Federal Reserve interest rate cuts.

The Australian dollar sagged near a four-month low after a dovish tilt to the central bank's policy outlook a day earlier. That also weighed on New Zealand's kiwi, which languished near a one-year trough.

Investors will also watch headlines from China's closed-door Central Economic Work Conference, which runs this week.

The anitipodean currencies got a boost at the start of the week after Beijing pledged more fiscal and monetary support for the economy next year, although that was overshadowed by Tuesday's Reserve Bank of Australia dovish statement. RBA Deputy Governor Andrew Hauser is due to speak later on Wednesday.

The dollar eased 0.12% to 151.80 yen as of 0045 GMT, but remained close to the overnight peak of 152.18 yen, its strongest level since Nov. 27.

The dollar index, which measures the currency against the yen and five other major peers, was steady at 106.36, after rising to a one-week high of 106.63 in the previous session.

Traders currently assign 85% odds to a quarter-point rate cut by the Fed on Dec. 18.

Economists expect both headline and core consumer prices to have risen 0.3% in November, from previous increases of 0.2% and 0.3%, respectively.

"Should this scenario materialize, there could be concerns that the Federal Reserve may not be able to cut rates as quickly as hoped, potentially benefiting the U.S. dollar," said James Kniveton, senior corporate FX dealer at Convera.

In the case of Australia, "while the market anticipates early cuts, the RBA has not confirmed this plan, and there is a precedent for the market getting ahead of the RBA, only to later adjust its expectations," Kniveton said.

Traders have ramped up bets for a quarter-point reduction in February to 62%, from closer to 50% a day earlier.

The Aussie was little changed at $0.6380 after dipping to $0.63655 a day earlier for the first time since Aug. 5. The kiwi was steady at $0.57985 after sliding to $0.5792 on Tuesday, a level not seen since November of last year.

The European Central Bank policy decision on Thursday is the main one investors are focusing for the remainder of this week, with markets certain of at least a quarter-point reduction.

The euro was steady at $1.052975. Sterling was little changed at $1.2777.

The Swiss franc held firm at 0.8830 per dollar, with markets assigning 61% odds to a half-point rate cut on Thursday from the Swiss National Bank.

The Bank of Canada is seen as likely to cut by a half point later on Wednesday, which is helping to pin the loonie near a 4-1/2-year trough to the greenback. One U.S. dollar last bought C$1.4173.

(Reporting by Kevin Buckland; Editing by Sam Holmes)