By Kevin Buckland

Currency Update: Dollar, Yen, and Antipodean Currencies

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, which could provide clues about the pace of Federal Reserve interest rate cuts.

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

Investors are watching headlines from China's closed-door Central Economic Work Conference, running this week. The antipodean currencies initially received a boost earlier in the week after Beijing pledged more fiscal and monetary support for the economy next year, although this was overshadowed by Tuesday's dovish statement from the Reserve Bank of Australia (RBA). RBA Deputy Governor Andrew Hauser is scheduled to speak later on Wednesday.

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

Traders currently assign 85% odds for a quarter-point rate cut by the Fed on Dec. 18. Economists expect headline and core consumer prices to have risen 0.3% in November, up from previous increases of 0.2% and 0.3%, respectively.

James Kniveton, a senior corporate FX dealer at Convera, stated, "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."

Regarding Australia, Kniveton noted, "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."

Traders have increased bets for a quarter-point reduction in February to 62%, up from about 50% the previous day. The Aussie remained little changed at $0.6380, after dipping to $0.63655 the day before, its lowest 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's policy decision on Thursday is the main focus for investors this week, with markets expecting at least a quarter-point reduction. The euro was steady at $1.052975, and sterling was little changed at $1.2777.

The Swiss franc held firm at 0.8830 per dollar, with markets assigning 61% odds of a half-point rate cut on Thursday from the Swiss National Bank. The Bank of Canada is also expected to cut by half a point later on Wednesday, helping to pin the loonie near a 4-1/2-year low against the greenback. One U.S. dollar last bought C$1.4173.