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FOREX-Dollar down, notably vs Aussie; ECB tender eyed

Published 09/30/2009, 03:52 AM
Updated 09/30/2009, 03:54 AM
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* Dollar down broadly, notably vs Aussie, yen, sterling

* Month-end, quarter-end flows dominant

* Eyes on ECB 1-year cash tender

(Recasts, adds comment and quote, updates prices, changes byline and dateline. Previous TOKYO)

By Jamie McGeever

LONDON, Sept 30 (Reuters) - The dollar fell against major currencies on Wednesday, with month- and quarter-end buying lifting sterling and the yen, and surprsingly strong Australian retail sales figures pushing the Aussie sharply higher.

The euro held firm ahead of the European Central Bank's one-year cash tender results. Attention will focus on the amount of liquidity pumped into the system and what that means for market-based interest rates and, much further down the road, policy rates.

The biggest gainer against the dollar was the Australian dollar, which rose 1 percent on the day to a 13-month peak after strong retail sales data added to the case for a rise in interest rates as early as November.

Sterling drew further support from the biggest rise in UK consumer morale for 14 years, extending its rebound from the previous day on talk the Bank of England is not likely to cut the rate of remuneration it pays on bank deposits any time soon.

"Other currencies are doing quite well, the Aussie especially, and equity markets are a little subdued and mixed. So in terms of risk appetite, we don't see any major driver," said Niels Christensen, FX strategist at Nordea in Copenhagen, referring to the dollar.

"And the market is a little bit hesitant ahead of events later this week, like the ECB tender," Christiansen said, echoing traders' view that month- and quarter-end flows from corporates and funds were moving exchange rates as much as economic fundamentals on Wednesday.

At 0730 GMT the dollar index was down 0.4 percent on the day at 76.815, within sight of its eight-month low just below 76.0 struck last week.

The Australian dollar was up 1 percent at $0.8795, having struck a 13-month high of $0.8805 after data showed Australia's retail sales grew 0.9 percent in August from the previous month, faster than a forecast 0.5 percent rise.

The euro was up 0.2 percent at $1.4620, and sterling was up two thirds of a percent at $1.6062.

ECB TENDER EYED

The dollar was down 0.4 percent against the yen at at 89.73 yen, within sight of the eight-month trough near 88.20 yen hit on Monday.

Sentiment toward the dollar remains broadly bearish. It has lost 10 percent of its value on a trade-weighted basis over the last two quarters as ultra-low U.S. interest rates and huge supply of greenbacks have tempted investors to sell it for higher-yielding currencies and assets.

The supply of euros in the financial system will garner attention on Wednesday, in the shape of the ECB's one-year refi.

The median forecast in a Reuters poll is for banks to take up 135 billion euros of unlimited one-year funds on offer at a fixed 1 percent -- less than a third of the 442 billion euros take-up at the ECB's first one-year tender in June.

A larger-than-forecast take-up would increase the amount of liquidity in the system, capping already depressed market-based interest rates and thereby hurting the euro. Alternatively, banks could use the cash to fund carry trades.

"The new flood of liquidity, even if less impressive than in June, should contribute to keep money market rates low in the next few months, and support carry trades," Unicredit said in a note.

Some analysts also see potential for banks to swap the euros into Swiss francs to cover their short positions in the Swiss currency. If so, traders will be on alert for Swiss National Bank intervention to stem any sharp rise in the Swissie.

"Given that the last major round of intervention by the SNB coincided with the allotment date of the previous 12-month refinancing operation, markets are braced for a similar move today, though euro/Swiss at present is probably trading at levels the SNB remains comfortable with," UBS analysts said in a note.

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