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FOREX-Dollar soft after bounce, high-yielders gain

Published 09/23/2009, 11:45 PM
Updated 09/23/2009, 11:48 PM
EUR/USD
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* Traders likely to sell dollar with US rates staying low

* Offers from Japanese exporters weigh on greenback

* NOK stands firm after Norway ponders rate hike

* High-yielders such as Aussie, kiwi resume rise

By Rika Otsuka

TOKYO, Sept 24 (Reuters) - The dollar softened against higher-yielding currencies on Thursday as investors shifted their funds away from the greenback on expectations the Federal Reserve will keep interest rate very low for a long time.

The dollar also edged down against the low-yielding yen after it met strong resistance above 91.50 yen, hurt by offers from Japanese exporters who have returned from a three-day holiday in Japan.

But the dollar hovered well above a 1-year trough against the euro as traders were careful about aggressively betting against the U.S. currency after seeing Wednesday's sudden slide in U.S. stocks.

Dealers were unsure what tipped shares lower, but it served as an excuse to take profits on short positions and lifted the dollar index to 76.393, from a 13-month trough of 75.827.

Analysts noted the Fed had reiterated its pledge to keep interest rates at exceptional lows for an extended period at this week's policy meeting, sounding less hawkish than some had thought.

"The Fed didn't make much of a change to factors surrounding the dollar. That means the overall dollar trend stays downwards," said Jun Kato, senior chief analyst at Shinkin Central Bank Research Institute.

Nine out of the 16 primary dealers in the Fed's 18-strong exclusive network of primary dealers responding to a Reuters poll said on Wednesday they expected the Fed to raise interest rates in 2010, though none of the dealers polled expect a rate rise before the second quarter of that year.

Five said the Fed would keep rates low until 2011 and two, HSBC and BNP Paribas, said 2012.

The dollar edged down 0.2 percent on the day to 91.08 yen, having slipped from the day's high of 91.63 yen.

The dollar is seen trapped in a range around 91 yen in the near-term as option barriers and bids from Japanese retail margin traders are expected to provide support below 90.50 yen, traders said.

The euro dipped 0.1 percent to $1.4719, off a one-year high of $1.4845 hit on trading platform EBS the previous day.

The European single currency is likely to see more profit-taking after a brisk rally in the past few weeks that has boosted the euro nearly 3 percent so far this month. But this is expected to be a temporary correction.

With rates set to stay near zero for some time to come, investors are likely to quickly return to funding carry trades in dollars, sending it lower once more.

"We expect to see EUR/USD rise to at least $1.5000 by the end of the year, and wouldn't rule out re-testing last year's highs at some point," said analysts at TD Securities.

The New Zealand dollar rose 0.3 percent to $0.7196, crawling towards Wednesday's high of $0.7315, its strongest since early August 2008. The kiwi jumped the previous day after data showed the economy unexpectedly pulled out of recession in the second quarter, fuelling expectations the central bank might have to start raising interest rates sooner than previously thought.

The Australian dollar, another higher-yielding currency, climbed 0.3 percent to $0.8693, rising towards a 13-month high of $0.8790.

The Norwegian crown, which jumped on Wednesday after the country's central bank said it had considered raising interest rates, stood firm..

The euro was down 0.1 percent at 8.5425 crowns, having fallen over 1 percent the previous day. (Additional reporting by Wayne Cole in Sydney; Editing by Joseph Radford)

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