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FOREX-Dollar hit broadly by U.S. rate view, recovery hopes

Published 10/14/2009, 04:25 AM
Updated 10/14/2009, 05:06 AM
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* Dollar hits 14-mth lows vs euro, Aussie, CAD, FX basket

* Higher oil, gold prices reflect more risk demand

* Market awaits JPM Q3 earnings later in the day (Adds comment, details, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, Oct 14 (Reuters) - The dollar hit a 14-month low versus the euro and a currency basket on Wednesday on the view that U.S. interest rates will stay low, while higher commodity prices reflected optimism about an improving global economy, tarnishing the U.S. currency's safe-haven appeal.

A rally in oil and gold prices helped to push currencies including the Australian and Canadian dollars to their highest in 14 months against their U.S. counterpart, while the yen benefitted from the view that authorities were unlikely to stem its appreciation at the moment.

Also pressuring the dollar were comments from Federal Reserve Vice Chairman Donald Kohn, who on Tuesday said the U.S. economy would not snap back quickly from its deep recession, adding to expectations of continued low U.S. rates.

Buoyant commodities boosted global stock markets, and European shares rose 1.4 percent in early trade. Analysts said these factors stung the dollar ahead of third-quarter earnings from JPMorgan due later on Wednesday.

"The upward pressure in commodity prices, especially oil climbing to the $74-$75 level, combined with decent expectations for Q3 earnings have contributed to upward pressure in euro/dollar," said Kasper Kirkegaard, currency strategist at Danske Markets in Copenhagen.

By 0758 GMT, the euro traded at $1.4890, after climbing to $1.4902 according to trading platform EBS in early European trade, its highest since August 2008.

A mass of option barriers suspected just above $1.49 were seen providing some resistance to further gains, but many in the market see the euro climbing higher, with Kirkegaard at Danske saying he expected euro/dollar to break above $1.50 in coming weeks.

The dollar index, which tracks the dollar's value against a basket of currencies, slid as low as 75.498, a trough last seen in August 2008. The Swiss franc rose as high as 1.0178 francs versus the dollar, its highest since July 2008.

The U.S. currency fell 0.6 percent on the day to 89.14 yen. The Japanese currency drew support from a senior Japanese official who signalled yen-weakening intervention was undesirable.

U.S. crude rose as high as $75.15 per barrel, and coupled with record high prices for gold, higher commodities boosted the Australian dollar to $0.9155 and the Canadian currency to C$1.0662, their strongest since August 2008.

Analysts said the day's main event would be JPMorgan earnings results due at around 1100 GMT. The investment bank is expected to post an earnings per share of $0.52 for July-September, compared with a loss of $0.06 per share the same period last year, according to Reuters data.

Analysts said a strong reading may further whet the market's appetite for risk, which could drive the dollar lower.

Also in focus are U.S. retail sales for September at 1230 GMT, which are expected to show a fall from the previous month. (Editing by Toby Chopra)

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