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FOREX-Dollar soft after G7 and on equities resilience

Published 10/05/2009, 04:00 AM
Updated 10/05/2009, 04:03 AM
SEBF
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*G7 reiterates familiar stance on FX

*Global stocks show resilience, fuelling "risk appetite"

*Aussie up as local media see chance of Tuesday rate hike

*Dollar the broad loser; dollar index down 0.4 percent

(Updates prices, adds comment and quotes, changes byline and dateline. Previous TOKYO)

By Jamie McGeever

LONDON, Oct 5 (Reuters) - The dollar fell on Monday after a G7 meeting at the weekend brought no surprises, which the market took as a signal policymakers are comfortable with a gradual dollar decline as part of global economic rebalancing.

The relatively resilient performance of global stocks despite a weak U.S. employment report on Friday also encouraged currency traders to buy perceived "riskier" units like the euro and high-yielding commodity currencies.

The biggest beneficiary was the Australian dollar, which was also boosted by mounting speculation in the Australian media that the central bank could raise interest rates this week.

After the Group of Seven finance chiefs' meeting in Istanbul, traders bet on further dollar weakness to help redress imbalances between consumer and indebted countries like the United States and producer and saver nations like China.

But the dollar held steady against the yen, with the perceived greater threat of intervention from Japanese authorities to fight export-damaging yen appreciation leading traders to buy other units such as euro and sterling.

"G7 basically repeated their mantra, although that's not really new news," said Johan Javeus, strategist at SEB in Stockholm.

"And stocks are not down that much in Asia...so it seems we could have some 'risk on' this week, and that's something that would trigger euro/dollar to go higher," he said.

European stocks were flat in early trade.

At 0730 GMT the dollar index, a measure of the greenback's performance against six major currencies, was down 0.3 percent at 76.90, while the euro climbed a third of a percent to $1.4620 .

The euro had traded below $1.45 on Friday after the U.S. jobs report for September, showing non-farm payrolls dropped by 263,000, triggered a flurry of safe-haven dollar buying. But the euro's quick bounce back suggested little appetite for further dollar strength, Javeus said.

AUSSIE UP

European Central Bank Governing Council member Ewald Nowotny was quoted on Monday as saying the euro's current level posed no major threat and merited scrutiny but no major action.

The euro also took some marginal support after Irish voters overwhelmingly endorsed the European Union's Lisbon reform treaty in a referendum -- a result which could smooth the 27-nation bloc's decision making process.

The Australian dollar was up almost 1 percent against the dollar at $0.8730, after two influential Australian columnists wrote that the country's central bank would probably raise rates to 3.25 percent from a record low 3.0 percent at Tuesday's policy meeting.

Australian markets had been pricing in only a low probability of a rate increase this week, with many expecting the central bank would be more likely to raise the cash rate from 3.0 percent in November.

Even if Australia keeps rate unchanged this week, the market view that it will be the first among industrialised nations to raise interest rates will remain, supporting the Aussie.

Against the yen, the dollar held steady around 89.78 yen with the market undecided whether to push it back down towards a recent eight-month low of 88.23 yen.

Japan's finance minister, Hirohisa Fujii, said in Istanbul that Japan would take action against what it perceived as excessive, one-sided moves in the yen. This helped put the brakes on dollar/yen's fall below 90 yen, traders said.

The G7 finance ministers and central bankers again urged China to strengthen the yuan to help correct global imbalances and said too much foreign exchange volatility tended to threaten economic stability.

"An unchanged G7 statement on FX, and no specific mention of dollar weakness, has left the dollar under pressure," RBC currency analysts said in a note on Monday.

Weaker-than-expected U.S. jobs data on Friday also reinforced expectations U.S. interest rates would remain low well into next year.

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