FOREX-Dollar downtrend gathers pace; ECB in focus

Published 10/07/2010, 06:30 AM
Updated 10/07/2010, 06:32 AM

* Dollar below Sept intervention levels vs yen, a 15-yr low

* Euro nears $1.40, focus on ECB's Trichet at 1230 GMT

* Aussie dollar surges to 27-yr high, close to parity

(Adds quote, detail)

By Neal Armstrong

LONDON, Oct 7 (Reuters) - The dollar's downtrend gathered pace on Thursday as it slid to a 15-year low versus the Japanese yen and an all-time low against the Swiss franc on the prospect of more money-printing by the U.S. Federal Reserve.

The Australian dollar surged to a 27-year high against its U.S. counterpart after surprising strength in the job market revived talk of a Reserve Bank rate hike, while the euro hit an eight-month high before a European Central Bank policy meeting.

The dollar's latest decline made traders nervous, as the U.S. currency traded below levels where Tokyo intervened for the first time in six years on Sept. 15.

Still, some market players speculated Japan may refrain from intervention before a Group of Seven (G7) finance ministers' and central bankers' meeting this weekend where the threat of a "currency war" is likely to dominate discussion.

"Currency imbalances will be a topic of discussion at the G7 but I don't think the yen will be a major issue. There will be more focus on China and the level of the yuan," said Manuel Oliveri, currency strategist at UBS in Zurich.

U.S. Treasury Secretary Timothy Geithner said on Wednesday that global institutions must persuade emerging countries such as China to let their currencies rise or risk competitive depreciations that would endanger the world economy..

Naoyuki Shinohara, deputy managing director of the International Monetary Fund and former Japanese vice finance minister for international affairs, told Reuters he saw little point in Japan trying to guide the yen.

At 0955 GMT the dollar was at 82.45 yen after hitting a 15-year low at 82.24 on trading platform EBS.

"There is a chance the BOJ will come in again to slow the pace of the yen's rise but they are swimming against the tide. This dollar move is all about Fed policy," said Jane Foley, senior currency strategist at Rabobank.

The dollar fell to a fresh 8 1/2-month low of 77.063 versus a basket of currencies and an all-time low versus the Swiss franc of $0.9555 on trading platform EBS.

AUSSIE SHINES

The Australian dollar surged to a 27-year high of $0.9915 after triggering stops above its 2008 high of $0.9851 and option barriers at $0.9900.

Australian total employment jumped nearly 50,000 in September, more than double estimates, in a stark contrast to unexpectedly soft U.S. private sector jobs data on Wednesday that sparked a fresh wave of dollar selling.

Traders said a hawkish interest rate outlook meant the Aussie was likely to test parity with the dollar and then $1.0236, the 161.8 percent Fibonacci projection derived from this year's range.

The euro rose to an 8-month high of $1.3995 on EBS before running into heavy option-related offers ahead of $1.4000. Traders reported good demand for one-month $1.4150 strikes as the market speculated on further euro gains.

The euro could face further volatility as traders wait to see whether European Central Bank President Jean-Claude Trichet makes any reference to currencies at a news conference around 1230 GMT after the policy meeting.

In contrast to the United States, monetary easing is not on the agenda in the euro zone as the ECB has started to withdraw special liquidity measures, a factor behind the euro's recent rise, which could endanger the economy.

"I think Trichet would be well within his rights to mention the official U.S. strong dollar policy, as he has done before, given the pace of the euro's rise." said Rabobank's Foley.

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