US dollar extends gains as hawks hear hike in Fed talk

SYDNEY (Reuters) - The US dollar hovered at one-week highs early on Thursday, having enjoyed another leg up after two influential Federal Reserve officials kept alive expectations for a hike in interest rates sometime this year.

New York Fed President William Dudley and Fed Governor Jerome Powell on Wednesday sketched out scenarios in which the central bank could make an initial move earlier than many now expect and then proceed in a slow and gradual manner on further rate increases.

Yet, minutes of the Fed's March meeting showed there was a wide divergence of views among policymakers, suggesting no consensus on the timing of a move.

"The final arbiter will be the data, recent data argued for delayed rate lift-off. A June 18 rate lift-off is now being priced as quite a slim chance," said David de Garis, senior economist at NAB.

Still, the chance of a hike at all this year is a stark contrast to Europe and Japan where quantitative easing has years to run. So dollar bulls took heart and bid up the dollar index to a one-week high of 98.197, further away from Monday's trough of 96.329. It last stood at 98.063.

The euro slipped to US$1.0784 and was now more than 2 per cent lower from this week's peak of US$1.1036 set on Monday.

Against the yen, the dollar popped back above 120.00 yen , having been as low as 119.65 on Wednesday. The euro traded at 129.58 yen, continuing to retreat from 131.30 set at the start of this week.

Among the commodity currencies, the Canadian dollar fared the poorest following a big fall in oil prices. The loonie fell as far as C$1.2559 per USD from C$1.2388 as oil prices slid 6 percent. It was last at C$1.2544.

In contrast, the Australian and New Zealand dollars merely pared gains versus the greenback. The Aussie traded at US$0.7689 , off Wednesday's session high of US$0.7727. Its kiwi peer slipped at US$0.7555, having lost a foothold above US$0.7600.

Trading in Asia is shaping up to be lacklustre amid a dearth of market-moving economic data. In Europe, German industrial production figures will take centre stage, followed by an interest rate decision from the Bank of England (BoE).

A Reuters poll published last week found an increasing number of economists expect the BoE will sit tight on interest rates until next year, as it waits for Britain's recovery to grow deeper roots and inflation to pick up.