Wednesday, Oct 13, 2010


 
   By Andrew J. Johnson and Robert Flint 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The dollar fell broadly Wednesday as the likelihood of more monetary easing and low interest rates in the U.S. pushed investors toward higher-yielding assets.

Commodity-based currencies as the Australian, New Zealand and Canadian dollars jumped higher, bouncing off a 1.6% spike in the price of a barrel of oil, which followed overnight data indicating global growth.

As gold and oil rallied sharply, the Australian dollar reached US$0.9940, its highest point since the currency was freely floated in 1983. Australia's economy is dependent on the export of commodities and higher prices provide strong support for its currency. The New Zealand dollar hit a high of US$0.7637, nearly a one-year high.

The Australian and Canadian dollars are both flirting with parity with the greenback. The Canadian dollar is significantly higher, with the greenback dipping at one point to a near six-month low at C$1.0010. The pair was last at parity on April 27.

To see the U.S. dollar's performance against the Canadian dollar, please see:

http://www.dowjoneswebservices.com/chart/view/4740

To see the Australian dollar's performance against the U.S. dollar, please see:

http://www.dowjoneswebservices.com/chart/view/4741

"It was a good day for risk," said Mike Moran, senior foreign exchange strategist at Standard Chartered Bank in New York. "You are seeing a big push as we move toward November, with the mid-term elections and [Group of 20 world leaders'] meetings -- as well as the Federal Reserve -- capable of providing legitimate sources of uncertainty. They can still give quite a jolt."

While the spotlight fell on commodity-linked currencies, the euro stuck close to $1.40, but had difficulty in remaining above that key level. Since reaching $1.4030 last Thursday, its highest mark since late January, the euro has failed to sustain numerous breaks above the $1.400 level.

The common currency has found support in the contrast between the likelihood of more quantitative easing in the U.S. and the euro zone's readiness to end extraordinary support measures.

"The euro still carries a significant amount of baggage, and with this soft dollar environment, the euro's strength has been more by default rather than by strength," said Moran.

The minutes from the latest Federal Reserve policy meeting continued to cast a pall over the greenback. Investors now expect the Fed to announce further asset-purchase programs to stimulate the sluggish U.S. economy, perhaps at its next meeting on Nov. 3.

Such measures hurt the dollar because U.S. interest rates will remain ultra-low for a longer period, steering investors toward higher-yielding currencies.

Better-than-expected industrial data from the euro zone and core machinery numbers from Japan -- as well as China's trade surplus -- also lifted risk sentiment.

Late Wednesday afternoon, the euro was at $1.3964 from $1.3914 from late Tuesday, according to EBS via CQG. The dollar was at Y81.74 from Y81.74, while the euro was at Y114.14 from Y113.74. The U.K. pound was at $1.5892 from $1.5796. The dollar was at CHF0.09584 from CHF0.9570. The dollar dropped to an all-time low against the Swiss franc at CHF0.9544 overnight.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.060 from 77.339.

Separately, China's foreign exchange reserves posted their biggest quarterly increase ever in the third quarter, providing further ammunition to critics who are pushing the country to allow further yuan appreciation.

The country's reserves totaled $2.648 trillion at the end of September, up sharply from $2.454 trillion at the end of June, the People's Bank of China said Wednesday.

Russia's central bank said it will start intervening to a somewhat lesser degree in the ruble exchange rate starting Wednesday, but traders and analysts said the new policy won't have an immediate effect on the currency.

The Bank of Russia buys and sells foreign currency to manage the ruble's exchange rate against a basket of dollars and euros, smoothing out volatility caused by sudden movements in the oil price or local demand for foreign currency. In the past, the central bank moved its floating corridor for the exchange rate after buying or selling $700 million to smooth out sudden movements in the currency. It will now adjust the corridor when only $650 million is bought or sold, the central bank said on its website. More importantly, the width of the floating corridor will also be increased to 4 rubles rather than 3 rubles.

With the ICE Dollar Index declining, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was up 0.22% from late Tuesday, while its PowerShares U.S. Dollar Index Bullish was down 0.27%. The two exchange-traded funds are based on Deutsche Bank currency-futures indexes, whose composition mirrors that of the ICE's Dollar Index.

-By Andrew J. Johnson and Robert Flint, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com

(END) Dow Jones Newswires

October 13, 2010 16:39 ET (20:39 GMT)