Currencies subdued in Xmas holiday lull, dollar adrift

The dollar, euro and yen were subdued on Thursday in a languid session with much of the Western world already shuttered for the Christmas and year-end holidays, but some players are eyeing the potential for more dollar strength next year.

The euro traded at $1.0922, having drifted up slowly from a low of $1.0903. Against the yen, the greenback eased to 120.75 from 121.00.

Many financial centres around the world will shut early and stay closed on Friday for the Christmas holidays. Some won't reopen until Tuesday.

The euro fetched 131.88 yen and remains hemmed in a 131.83-131.98 range.

The Japanese currency has well and truly gotten over last Friday's move by the Bank of Japan (BOJ) to fine tune its massive stimulus program. There was no major reaction to minutes of the BOJ's November meeting.

All that left the dollar index a touch softer at 98.256, still well off last Thursday's peak of 99.294. It was back at levels seen before the Federal Reserve delivered a highly anticipated hike in interest rates a week ago.

A mixed bag of US data on Wednesday gave the market no real steer. New orders for US manufactured capital goods fell in November, but personal income rose for an eighth straight month. Consumer sentiment hit a five-month high in December.

Yet, analysts at BNP Paribas see potential for further upside in the greenback.

"If US data remains broadly in line with the Fed's expectations, we suspect the dollar will be off to a positive start in 2016 as there is plenty of scope for rates markets to price in more Fed hikes," they wrote in a note to clients.

"We exited our cash dollar trade recommendations this week but will be looking to re-establish longs early next year." The Canadian dollar held onto most of its overnight gains, spurred by a rebound in oil prices. The loonie traded at C$1.3843 per US dollar, off a near 12-year trough of C$1.4003 set last week.

The Australian and New Zealand dollars were also bid at $0.7252 and $0.6802, respectively, having rallied from last week's lows of $0.7097 and $0.6688.

Traders said the Antipodean pair have been underpinned by heavy buying interest from real money accounts, suggesting the hunt for yield is still in play for some.