💥 Fed cuts sparks mid cap boom! ProPicks AI scores with 4 stocks +23% each. Get October’s update first.Pick Stocks with AI

FOREX-Dollar steady, market eyes reserve currency debate

Published 06/29/2009, 12:06 AM
Updated 06/29/2009, 01:28 AM
AA
-

* Dollar broadly steady after slide Friday on China comments

* Dollar index holds near 2-week low, Aussie down

* Japan industry output surges, matches April's 50-yr record

By Aiko Hayashi

TOKYO, June 29 (Reuters) - The dollar regained some ground on Monday after falling broadly late last week on a renewed call by China for a super-sovereign reserve currency, placing higher-risk currencies such as the Australian dollar under pressure.

China's central bank did not mention the dollar by name on Friday but said it was a serious defect in the international monetary system that one currency should dominate.

Debate about an alternative international currency has heated up in recent months and central bankers gathering in Basel this weekend also discussed the dollar's role.

China, the world's top holder of foreign exchange reserves, is working with Brazil on a currency arrangement to allow exporters and importers to settle deals in their local currencies, their central banks said.

"The market is watching cautiously to see if China will keep making comments on the reserve currency," said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities.

"If it does, that will likely start having more of an impact on the market. But at the moment market people seem to think China is unlikely to change its policy right away, considering the size of its U.S. debt holdings."

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.

The euro fell 0.2 percent to $1.4025 after gaining about 0.6 percent on Friday, still below its 2009 peak of $1.4339 set in early June.

The dollar index, a gauge for the greenback's performance against six other major currencies, rose 0.2 percent to 80.068, holding above last week's two-week low of 79.562.

Some Asian share markets rose while others fell, after a mixed finish on Wall Street. U.S. data showed that while consumer spending and incomes both rose in May as the government stimulus spread through the economy, much of the money was being stashed away.

Japan's industrial output rose 5.9 percent in May, matching a jump in April that was its fastest pace since 1953, as car and electronics production recovered from a deep slump. But analysts said the outlook remained murky once the effects of government stimulus wear off.

It was the third month in a row of increase, after a big slump, but the rise was smaller than the 7.0 percent improvement forecast by the market and Tokyo's Nikkei average gained just 0.4 percent.

"Today's data is neutral in terms of monetary policy. It signals that the worst is over and the economy is unlikely to come to the edge of the precipice again, but it's still too early to call a sustainable recovery," said Junko Nishioka, chief economist at RBS Securities.

Against the yen, the dollar inched up 0.3 percent to 95.50 yen and the euro steadied at 133.99 yen.

Japanese importers' demand at the Tokyo commercial fix at 0100 GMT helped lift the dollar against the yen, a trader at a big Japanese bank said.

Still, traders generally expect activity to be cautious ahead of U.S. jobs data on Thursday as investors await more clues on the pace of recovery in the economy. The data is on Thursday rather than Friday due to a U.S. holiday.

The market is also awaiting the Bank of Japan's tankan business survey due out on Wednesday. It is likely to show the mood among big Japanese manufacturers improved from record lows a quarter ago.

U.S. corporate earnings will be also in focus, with aluminium producer Alcoa Inc set to kick off the earnings season when it reports on July 7.

The Australian dollar fell 0.6 percent to $0.8027, after gaining about a similar amount on Friday, and slipped 0.3 percent to 76.69 yen.

Traders said the Australian dollar and other higher-yielding currencies came under pressure as the U.S. dollar gained after sharp falls made late last week.

Some cited disappointment that Japanese industrial production came in weaker than expected, as Japan is the single biggest importer of Australian resources. (Editing by Joseph Radford)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.