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FOREX-Dollar grinds lower, euro's path to $1.50 blocked

Published 10/20/2009, 02:23 AM
Updated 10/20/2009, 02:28 AM
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* Dollar hits fresh year-lows on index, vs CHF, AUD

* Slide seen due to mix of Bernanke, Trichet, RBA, stocks

* Euro slowed by options barriers as it nears $1.50

By Kaori Kaneko

TOKYO, Oct 20 (Reuters) - The dollar fell to fresh lows for the year on Tuesday as a cocktail of comments by policy makers fed into dollar-bearish sentiment, although options-related trade blocked the euro's path to $1.50.

The euro touched its highest level in 14 months at $1.4994, a hair's breadth short of $1.5000 as traders reported talk of options barriers at and around that level with expiries in Tokyo and New York trading time.

Dealers said Japanese exporters also joined the selling, after the dollar failed to extend a recent rebound against the yen, and the Australian dollar pierced $0.9300 for the first time in 14 months after hawkish comments from the central bank.

"In addition to options-related trading, the market seems to have taken it as OK to test higher levels on the euro as there were no strong comments about euro strength from the eurozone financial ministers meeting," said Kazuyuki Kato, treasury department manager at Mizuho Trust & Banking.

Some traders in Asia had trimmed long euro positions on Monday ahead of a meeting of euro zone finance ministers and European Central Bank President Jean-Claude Trichet, in case they came out against the euro's recent appreciation.

In the event Trichet discussed FX rates with the ministers but then just repeated the line that he had no reason for doubt when U.S. officials said a strong dollar was in U.S. interests.

The dollar has been under sustained pressure this year due to expectations for low U.S. interest rates and questions about its status as the world's reserve currency.

Federal Reserve Chairman Ben Bernanke called on Monday for action on global imbalances, saying China and other Asian nations were looking more seriously at rebalancing than in the past but some issues could be addressed through greater FX flexibility.

"The mention of global imbalances should imply a weak dollar," said Masafumi Yamamoto, chief FX strategist Japan at Barclays Capital.

The dollar index, a measure of its strength against six major currencies, fell 0.5 percent to 75.158 after dipping as far as 75.117, its lowest in 14 months.

After failing to breach $1.50 in Asian trade, the euro steadied at $1.4978. Traders said there seemed to be a large amount of euro/dollar options at $1.50 with expiries thought to be at 1400 GMT in New York.

Against the yen, the dollar fell 0.5 percent to 90.15 yen with Japanese exporters choosing to convert dollars to yen after the greenback failed to get above 91.00, traders said.

Traders said comments by Japanese Finance Minister Hirohisa Fujii that dollar weakness was due to U.S. monetary easing were used as an excuse to sell the dollar into stop-loss sell orders below Y90.30, helping push it lower still.

Stock markets around the region were also up after U.S. shares rose to fresh 12-month highs on Monday as optimistic investors rode a wave of solid quarterly earnings.

"Stocks stayed firm following upbeat earnings in U.S. corporate results, and investors' shifting of funds into commodity-linked currencies continues," said Kato at Mizuho Trust & Banking.

The Australian dollar climbed as far as $0.9310 after minutes from the Oct.6 Reserve Bank of Australia policy meeting said it may be imprudent to keep rates very low.

The Australian dollar has risen more than 30 percent against the greenback so far this year, aided by its higher interest rates and prospects for further increases, while the dollar's low rates have turned it into a funding currency for riskier assets.

"The market view that U.S. interest rates will stay low for a while is keeping the dollar weak, while high-yielding currencies will remain in an upward trend," said Yuji Saito, head of the FX sales department at Societe Generale.

Profit-taking set in later but the Aussie was still trading at $0.9280, although it lost ground to the yen, backing down from a one-year high of 84.31 yen. (Additional reporting by Charlotte Cooper; Editing by Michael Watson)

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