Tuesday March 3, 2009 - 10:56:52 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar dips as Wall St seen higher, RBA lifts Aussie
* Dollar dips with Wall St set to open higher
* RBA holds rates, sparking buying in Aussie, euro
* BoC, ECB, BoE in focus as OECD sees more big rate cuts
(Adds quotes, updates prices)
By Kirsten Donovan
LONDON, March 3 (Reuters) - The dollar slipped on Tuesday
with Wall Street set to recover some of the previous day's hefty
losses and as traders bought the euro and other higher-yielding
currencies after the Reserve Bank of Australia unexpectedly left
interest rates on hold.
But activity was subdued as investors took a wait-and-see
stance, believing that increased worries about the financial
system and fears about the deepening global recession would
quickly curtail any move into riskier assets.
Illustrating how fragile markets are, European equities
pared earlier gains with the FTSEurofirst 300 .FTEU3 hitting a
lifetime low, although U.S. stock futures SPH9DJH9 were
still pointing to a higher open on Wall Street.
The dollar index .DXY, a gauge of its strength against a
basket of six other major currencies, hit a three-year high in
overnight trade as investors sought shelter in the world's most
But it pared gains as the RBA kept rates unchanged at 3.25
percent on Tuesday, confounding hopes for a cut, saying stimulus
already in the pipeline was helping the country avoid the depths
of recession seen elsewhere [ID:nSYD474106].
"Yesterday we saw some big moves in risky assets in general
and today we've seen a bit of stabilisation of sorts but I don't
think it's a reversal of any sort," said Adarsh Sinha, a
currency strategist at Barclays Capital.
"The dollar has been rallying, the dollar index made a new
high and we're seeing a bit of consolidation around these
By 1015 GMT, the dollar index was 0.45 percent lower at
88.893, after hitting a three-year high of 89.026 in Asian
trading. The Australian dollar jumped 2 percent to $0.6420
The euro received a boost as speculators bought back the
European single currency following a jump in the Australian
dollar, and ahead of a policy meeting by the European Central
Bank later this week.
But both the euro and sterling pared gains against the
dollar after the OECD said it expected further significant rate
cuts from major central banks including the ECB and Bank of
Organisation for Economic Co-operation and Development chief
economist Klaus Schmidt-Hebbel also said the global economic
downturn will be considerably deeper than even the International
Monetary Fund forecast a month ago [ID:nLP704371].
The euro rose 0.35 percent from late U.S. trade to $1.2627
<EUR=>, recovering losses suffered in the wake of European Union
leaders' rejection of a mass bailout for Eastern Europe, which
weighed on the single currency the previous day. [ID:nL1547427]
LULL IN THE STORM?
The dollar was supported on Monday as steep losses on Wall
Street and dire financial news including insurer AIG's (AIG.N: Quote, Profile, Research, Stock Buzz)
record loss increased worries about the global credit crisis.
"What we have for now could well end up being a temporary
lull before the pace picks up again," said James Hughes, market
analyst at CMC markets in a note.
"But one point that yesterday's broad based sell-off in
benefit of the dollar does make is that the currency continues
to hang onto its favoured status despite the rather dubious
outlook that's associated with the U.S. economy right now."
Markets will also remain focused on monetary policy
decisions with the Bank of Canada expected to cut its key
interest rate by half a point to a record low of 0.5 percent
later on Tuesday ahead of policy meetings by the European
Central Bank and the Bank of England on Thursday.
The ECB is expected to cut interest rates to an all-time low
of 1.5 percent from the current 2 percent [ID:nL2901405], with
the BoE also seen cutting by 50 basis points to a record low 0.5
percent [ID:nLQ84255] and possible detail the roll-out of
alternative monetary policy strategies.
"The belief that quantitative easing will coincide with a
rate cut is doing the rounds again weighing heavily on
sterling," said Maurice Pomery, head of FX at IDEA Global.
"The rate cut is probably of little importance now and the
market will have to decide what impact on the pound will be seen
if they do embark on quantitative easing this week."
Sterling was up 0.26 percent at $1.4080 <GBP=>.
The dollar was 0.38 percent higher at 97.58 yen <JPY=>,
staying below a 3-1/2 month peak of 98.72 yen struck last week.
(Reporting by Kirsten Donovan, editing by Mike Peacock/Victoria
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