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Tuesday January 12, 2010 - 21:40:30 GMT
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FOREX NEWS - Commodity currencies slip on China's bank measures

4:19pm EST

(Refiles with no changes to headline, text)

* Commodity FX tumbles after China ups bank reserve ratios

* China announcement raises concerns about global recovery

* Dollar falls vs euro; yen at three-week highs (Recasts; updates prices)

NEW YORK, Jan 12 (Reuters) - Commodity currencies slipped on Tuesday after China said it would tighten banks' reserve requirements, raising concerns that Chinese demand could fall and slow the global economic recovery.

China's central bank surprised world markets with a statement that it would raise the reserve requirement ratio by a half-percentage point, effective next week, in the clearest sign yet of monetary policy tightening. For details, see [ID:nTOE60B095]

Commodity-linked currencies -- including the Australian, New Zealand and Canadian dollars -- all hit session lows against the U.S. dollar, following a sell-off in gold prices. The commodity currencies also tumbled against the Japanese yen.

"The Chinese announcement has the potential to be this week's most important currency market driver and the market reaction over the next 24-48 hours bears close watching," Nick Bennenbroek, head of currency strategy at Wells Fargo in New York, said in a note to clients.

The announcement underlined the risk tied to those currencies which, along with commodities, rallied for much of 2009 on the view that the global economy was on a path toward recovery.

China is also a major importer of commodities and any drop in its demand is seen as a negative for commodity-linked currencies.

"The kneejerk reaction will be negative for commodity currencies as traders worry about a central bank imposed slowing of the Chinese economy weighing on the global recovery," said Camilla Sutton, a currency strategist at ScotiaCapital in Toronto.

In late trading in New York, the Australian dollar <AUD=> traded 1.3 percent lower at $0.9196. It touched a two-month high on Monday.

The New Zealand <NZD=> and Canadian dollars <CAD=> also fell after China's announcement, which earlier triggered broad selling in gold <XAU=>.

The New Zealand dollar was last down 0.6 percent at US$0.7384, while the U.S. dollar rose 0.7 percent against the Canadian dollar to C$1.0399. The dollar also gained 0.5 percent against South Africa's rand <ZAR=> to 7.42 rand.

The Australian dollar slipped 2.3 percent against the yen <AUDJPY=R> while Canada's dollar fell 2 percent against the Japanese currency <CADJPY=R>.


A report showing the U.S. trade deficit widened more than expected in November had a limited impact on the dollar. [ID:nN11164825]

Traders said other economic indicators scheduled for release this week, including U.S. retail sales and consumer confidence, are likely to have a bigger impact on the dollar.

"We need more data before accessing how is the dollar going to trade in the short term," said Gregory Salvaggio, a trader at Tempus Consulting, in Washington, D.C.

Salvaggio said that against the dollar, the euro was likely to trade in a range between $1.4352 and $1.46 in coming days. The euro was last down 0.2 percent at $1.4486 <EUR=>, after trading as low as $1.4454 earlier in the session.

Analysts at Citigroup said in a note that technical indicators point to further gains in the euro, saying it could move above $1.47 in the short term.


The European currency got some support after Greek Finance Minister George Papaconstantinou told a German newspaper on Tuesday that Greece had no more "skeletons in the closet," and the country had a solid basis for cutting its deficit. [ID:nLDE60B1LK]

Worries about Greece's financial situation have weighed on the euro in recent months.

The dollar also seesawed against the yen. The greenback fell 1.3 percent against Japan's currency and last traded at 90.91 yen <JPY=>, remaining near a three-week low.

The dollar had risen earlier against the yen after a Chinese sovereign wealth fund official said he did not think the U.S. currency would depreciate further.

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