The dollar was close to a two-month low versus the euro before Federal Reserve Chairman speaks on the economy and ahead of reports forecast to show initial jobless claims rose and existing home sales fell. The Australian dollar traded near a two-month high as Asian stocks extended a rally from the U.S., boosting demand for higher-yielding assets.

“Disappointing economic data and diminishing expectations the Federal Reserve will raise rates have pushed down the dollar,” said Satoru Ogasawara, a foreign-exchange analyst and economist in Tokyo at Credit Suisse AG. “The dollar may fall to 85 yen in the short term.”

The U.S. currency was at 87.29 yen as of 9:28 a.m. in Tokyo from 87.51 yen in New York yesterday. It reached 86.27 yen on July 16, the weakest level since Dec. 1. The U.S. currency traded at $1.2890 per euro from $1.2880 yesterday, when it touched $1.3029, the lowest since May 10. The euro was at 112.50 yen from 112.70 yen.

Bernanke is set to give his semiannual report on the economy to Congress today and tomorrow.

Initial jobless claims rose to 445,000 last week from 429,000 the prior week, according to the median estimate of economists before the Labor Department data. Sales of existing homes dropped 9.9 percent to a 5.1 million annual rate in June, another survey showed ahead of the National Association of Realtors report. Both sets of data are due tomorrow.

Commodity Currencies

Australia’s currency traded at 88.30 U.S. cents from 88.39 cents yesterday, when it gained 1.8 percent. It reached 88.71 cents on July 14, the most since May 14. The currency was at 77.10 yen from 77.35 yen.

“Commodity currencies will continue to follow equity markets,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “Bernanke’s testimony is the other thing driving the U.S. dollar weakness with people expecting him to be dovish.”

The MSCI Asia Pacific Index of regional shares rose 0.4 percent and Australia’s S&P/ASX 200 Index advanced 0.4 percent. The Standard & Poor’s 500 Index gained 1.1 percent yesterday.

Australia’s benchmark interest rate is 4.5 percent, compared with as low as zero in the U.S. and 0.1 percent in Japan, making the South Pacific nation’s assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves will erase profits.

‘Lost Ground’

Gains in the euro may be curbed on speculation this week’s results of stress tests on European banks will show they require funds to cope with possible loan losses.

European regulators plan to detail three scenarios when they publish the results of their stress tests on the region’s banks on July 23, according to a document by the Committee of European Banking Supervisors. Banks will publish their estimated Tier 1 capital ratios under a benchmark for 2011, an adverse scenario and a third test that includes “sovereign shock,” according to a template prepared by CEBS for the banks and obtained by Bloomberg News.

“The euro lost ground against the dollar on profit taking and ahead of European bank stress test results,” analysts led by Justin Smirk, chief economist in Sydney at St. George Bank Ltd., wrote in a research note today. “There is a risk that some banks will need to raise more capital.”

European regulators are examining the strength of 91 banks to determine whether they can survive potential losses on sovereign-debt holdings.

The euro has declined 7.6 percent this year, the biggest loss among its developed-world counterparts, according to Bloomberg Correlation-Weighted Indexes. The dollar is up 3.8 percent, and the yen has advanced 11 percent.