Dollar firms as markets count down to Fed

By Ian Chua

SYDNEY (Reuters) - The dollar was broadly firmer early on Wednesday, having bounced on the back of higher Treasury yields as the market counts down the hours to a likely hike in U.S. interest rates.

The Federal Reserve is widely expected to deliver its first rate increase in nearly a decade later in the day. But after more than a year of anticipation, investors are keener to know how quickly the central bank will tighten following the initial move.

"If ever there was going to be a day of twiddling thumbs ahead of key event risk, surely today is the day," said Ray Attrill, global co-head of FX strategy at National Australia Bank.

The dollar index last stood at 98.144, having gained 0.6 percent on Tuesday. Against the yen , the greenback popped back above 121.50, pulling away from Monday's trough of 120.35.

The euro traded near $1.0900 after recoiling from a seven-week peak of $1.1060. It was fairly steady against its Japanese peer at 133.00.

"With USD positioning now substantially reduced and the USD trading at more attractive levels versus key G10 currencies, we think the USD is more likely to gain immediately in the aftermath of Fed tightening," analysts at BNP Paribas wrote in a note to clients.

Among the biggest underperformers overnight was the Australian dollar, which dipped back below 72 U.S. cents from a high of $0.7283.

Anyone looking for an excuse to sell the Aussie found one in comments from Reserve Bank of Australia Governor Glenn Stevens.

In an interview with the Financial Review, Stevens said he expected the currency could weaken further in sympathy with falling commodity prices.

Stevens, though, gave an upbeat assessment on the economy, setting the bar high for any further cuts in rates.

RBA Assistant Governor Guy Debelle is due to speak later in the morning on "Some Effects of the New Liquidity Regime", a topic unlikely to get markets too excited.

(Reporting by Ian Chua; Editing by Dan Grebler)