Dollar spirals lower, Aussie guns for parity

TOKYO - The US dollar dropped to its lowest this year against a basket of currencies on Thursday, driving the Australian dollar up near parity as expectations of US easing kept investors piling on bets against the greenback.

By (Reuters)

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Published: Thu 14 Oct 2010, 3:34 PM

Last updated: Thu 2 Apr 2015, 9:48 AM

The Australian dollar, which boasts the highest yield among major currencies, soared to a 28-year peak at $0.9983 as investors continued to dump the greenback, expecting the Federal Reserve to start further money-printing next month.

The catalyst for the latest leg down was a move by Singapore to widened the trading band of the Singapore dollar, which hit a new record high, and a clear break by the euro through $1.4000, which triggered buy orders and drew model accounts into the fray.

The dollar index, which tumbled to its weakest since December at 76.465, is now on course for a test of trendline support at 75.95, with its November low of 74.17 then not far away. The euro, which surged close to $1.4100, now has resistance at $1.4195-1.4220 in its sights.

“The dollar’s declining trend is intact. As the Fed will flood the markets with dollar cash, the dollar is weakening while funds are flowing to shares and any other asset markets,” said Tsutomu Soma, senior manager of foreign securities at Okasan Securities.

The dollar also hit the latest in a succession of record lows against the Swiss franc and slid to parity with the Canadian dollar, a level not seen since April this year.

Commodities also rallied as the dollar fell, with gold hitting a record high and silver climbing to its priciest in 30 years.

The dollar index fell 0.6 percent on the day to 76.520 after breaching its January low at 76.60. The 75.95 target is the trendline from two major lows in July 2008 and in November 2009.

The euro jumped 0.8 percent to $1.4080, after rising as far as $1.4095, its highest in more than eight months. After failing to crack $1.40 the previous session, its move caught some players who had been expecting more consolidation by surprise as it triggered stops around $1.4030 and then $1.4050.

“People who thought they might get the chance to buy it back are having to chase it a bit here given the pace at which the dollar’s decline has resumed,” said John Horner, foreign exchange strategist at Deutsche Bank in Sydney.

The Australian dollar, with its high yield and the economy’s link to commodities, advanced as many traders saw a rise to parity with the U.S. dollar as just a matter of time.

It rose more than 0.7 percent to $0.9983, its highest in 28 years, bringing its year-to-date gains to 11.3 percent. It has risen 23.8 percent from a low in May.

Some resistance is expected at $1.0000, where option barriers are said to lie.

Catalyst

Momentum picked up after Singapore widened the trading band for its currency and said it would maintain modest and gradual appreciation in the Singapore dollar. The Monetary Authority of Singapore sets policy by managing the Singapore dollar in a secret trade-weighted band against a basket of currencies, instead of setting interest rates.

The U.S. dollar fell, touching a record low of S$1.2888.

“Singapore raised its currency more than expected. That has opened the possibility of more strengthening in Asian currencies, including China, ahead of the G20 meetings,” said Hideaki Inoue, forex manager at Mitsubishi Trust Bank.

Group of 20 finance ministers meet in South Korea on Oct. 22-23, which will be followed by a G20 summit on Nov. 11-12.

“I’m also keen to see what the Chinese communist party committee will discuss at its meeting from tomorrow,” Inoue said.

The U.S. dollar fell 0.8 percent to a fresh 15-year low of 81.14 yen, despite constant wariness about Japanese intervention, nearing its record low of 79.75 hit in April 1995.

While traders think Japan could intervene to keep the yen in check at any moment, some market participants speculated that Tokyo may prefer to avoid intervention ahead of G20 meetings.

In a sign that market conviction on quantitative easing is entrenched, participants shrugged off comments from Richmond Fed President Jeffrey Lacker that he would not support more easing if economic conditions remain as they are.

Lacker, generally seen as a policy hawk and not a voter on the FOMC this year, has been suspicious of unorthodox policies and many market players think Fed chief Ben Bernanke is determined to act now to shore up the U.S. economy.

Still, some players cautioned that financial markets may have already priced in quantitative easing by the Fed early next month and that the dollar’s decline may soon have run its course.

“Speculators will perhaps start closing their dollar short positions before the next FOMC meeting (on Nov. 3), which could keep the dollar in recent trading ranges in the next few weeks,” Soma at Okasan Securities said.



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