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FOREX-Dollar stuck near 15-month lows on benign rate view

Published 11/16/2009, 07:03 PM
Updated 11/16/2009, 07:06 PM

* Dollar under pressure as rates seen at lows

* USD funded carry trades likely to gather momentum

* Aussie eyes RBA minutes for next move in policy

By Anirban Nag

SYDNEY, Nov 17 (Reuters) - The U.S. dollar was stuck near 15-month lows on Tuesday, though its broad downtrend was intact on a growing view that U.S. rates are likely to stay low for a while, giving a boost to dollar funded carry trades.

Federal Reserve Chairman Ben Bernanke signalled U.S. rates will stay at zero for some time in a New York speech, adding in a rare commentary about the U.S. dollar that the Fed was closely watching the currency's decline as part of its commitment to both jobs growth and price stability..

"He is telling us that despite the greenback's rapid decline, despite a rapid increase in risk appetite and the 'cross-currents' to inflation this represents, despite all that we are going keep rates at an exceptionally low level for an extended period," said Adam Carr, senior economist at ICAP.

"The Fed has no intention of pre-empting anything looking forward or risk managing anything."

Richard Fisher, president of the Dallas Fed, said the dollar's decline so far has not been disorderly. He said the commitment to keep rates low for an extended period can create the potential for carry trades and that the Fed was fully aware of this risk.

Fed Vice Chairman Donald Kohn said the low interest rate policy was meant to encourage investors to move into riskier assets and there are no signs yet of an asset bubble building up in the United States.

The euro was higher at $1.4985, but off a high of $1.5015 struck on Monday when it gained nearly 0.4 percent.

The dollar index was down at 74.835, having fallen to as low as 74.679 its lowest level since August 2008.

Chartists said the index seemed to have found some support around the 74.75 level for now, and a decisive break below this level could be crucial since it would raise the risk of a disorderly decline in the dollar. Also, a daily and weekly close below that level could result in a renewed bout of weakness.

The yen extended gains to 88.91 per dollar, with major support seen around the 88 mark. Stops were triggered below 89.20 and 89, traders said.

The Aussie held strong near 15-month highs at $0.9370. It climbed to as high as $0.9407 with investors awaiting the minutes for the Reserve Bank of Australia's last policy meeting on Nov. 3, due at 0030 GMT. The minutes will be scrutinised by investors for clues about the next policy move.

Markets will watch for any comments on currencies when U.S. President Barack Obama and Chinese President Hu Jintao make statements.

At the weekend the United States and China sparred over exchange rates at a meeting of Asia Pacific leaders, a move that quashed speculation China may allow some further yuan appreciation in coordination with Obama's first trip to China. (Editing by Jonathan Standing)

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