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FOREX-Dollar recovers, supported by low risk demand

Published 06/29/2009, 04:19 AM
Updated 06/29/2009, 04:24 AM
SEBF
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* Dollar recovers, mixed stocks keep risk demand low

* China comments on currency reserves support U.S. currency

* Markets await U.S. payrolls due later in the week (Adds comment, details, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, June 29 (Reuters) - The dollar inched up on Monday, recovering some losses suffered last week as struggling global shares kept intact safe-haven demand for the U.S. currency, which was also supported by comments by China about its foreign reserves.

Currencies perceived to be higher risk, like the Australian and New Zealand dollars, came under some selling pressure as U.S. stock futures were unable to make any headway even as European shares eked out gains in early trade.

A 1 percent slide in Japanese share prices earlier in the day added to the mixed picture for stock markets and kept risk demand contained, which analysts said would add to the dollar's recovery. "The Nikkei was down today, which was good for the dollar," said Johan Javeus, chief currency strategist at SEB Merchant Banking in Stockholm.

"Comments by China that it wouldn't make rapid changes to its forex reserves are also positive for the dollar."

At a gathering of central bankers in Basel at the weekend, China said its policy for currency reserves -- which comprises massive amounts of U.S. Treasuries -- was stable and consistent, with no sudden changes.

By 0746 GMT, the dollar index was up 0.2 percent at 80.045. The euro slipped 0.2 percent to $1.4025, having touched the day's low around $1.3984 earlier in the day.

European shares rose 0.5 percent, but gains were seen to be limited given that U.S. stock futures were down slightly on the day.

The Australian dollar slipped 0.6 percent to $0.8025, while the New Zealand dollar was little changed on the day, having spent much of the session in negative territory.

The dollar was up 0.2 percent at 95.44 yen, but slight risk aversion boosted the Japanese currency against the euro and the Australian dollar.

US JOBS DATA LOOM

Analysts said market movements may be subdued ahead of U.S. payrolls figures due on Thursday, while adding that the dollar may be supported on expectations that the data may show that the dismal jobs picture may finally be stabilising.

Policy statements by the European Central Bank and Sweden's Riksbank are also scheduled on Thursday.

China's comments come at a time of simmering speculation that countries may be considering diversifying reserve holdings in the future to hold less U.S. assets, which would reduce the dollar's role as the world's primary reserve currency.

Last week, China's central bank renewed its call for the creation of a super-sovereign reserve currency to reduce the dollar's global domination.

Despite the doubts building about the dollar's reserve status, foreign central bank holdings of U.S. Treasuries have soared by $115 billion in the past eight weeks, a near record pace of demand and showing persistent buying. (Reporting by Naomi Tajitsu; editing by Mike Peacock)

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