* Chinese money market rates weigh
* Soft U.S. jobs data cements view Fed stimulus to stay
* BoC drops rate hike reference, Canadian dollar tumbles
By Julie Haviv
NEW YORK, Oct 23 (Reuters) - The dollar, yen and Swiss franc
all rose on Wednesday after a spike in China's short-term
money-market interest rates drove risk aversion, driving bids
for the three safe-haven currencies.
Chinese money-market rates climbed to levels not seen since
July after the People's Bank of China failed to inject cash for
a second day, as regulators showed signs of concern that loose
liquidity might be fueling another found of risky credit
The rate spike was short-lived but caused a market panic
nevertheless, prompting a scramble for safe-haven dollars, Swiss
francs and yen.
The move came a day after the dollar plunged as soft U.S.
jobs data for September appeared to rule out a cut in the
Federal Reserve's monetary stimulus before next year.
"The weight of a weak U.S. nonfarm (payrolls) is surpassed
by rising risk aversion on concerns over China's money market.
Profit-taking takes hold," said Camilla Sutton, chief currency
strategist at Scotiabank in Toronto.
The dollar also rose against riskier and commodity-linked
currencies such as the Australian and New Zealand dollars.
In afternoon New York trading, the Aussie dollar fell 0.8
percent versus the greenback to US$0.9629, while the New
Zealand currency dropped 1.5 percent to US$0.8385.
But the Canadian dollar plunged after the Bank of Canada on
Wednesday dropped reference to any interest rate increase for
the first time since April 2012, citing weak economic growth.
The euro was little changed against the dollar after the
president of the European Central Bank, Mario Draghi, said he
wants to put in place a tougher stress test for
The euro was up 0.1 percent at $1.3792, matching
Tuesday's high, which was its strongest since mid-November 2011.
The yen was also in demand, with the dollar down 0.9 percent
at 97.24 yen and the euro 0.8 percent weaker at 134.08
The Swiss franc also rose, as the dollar slipped 0.4 percent
to 0.8912 franc and the euro fell 0.3 percent to 1.2290
The dollar index, which gauges the dollar against a basket
of widely traded currencies, was little changed at 79.256
. It fell as low as 79.137, its weakest level since early
Still, the outlook for the U.S. dollar remained downbeat.
Tuesday's U.S. jobs report has pushed out expectations for a
reduction in the Fed's asset-buying plan well into 2014,
Scotiabank's Sutton said. That outlook leaves the Fed's balance
sheet expanding rapidly while those of other central banks are
stabilizing or contracting.
A majority of U.S. primary dealers polled by Reuters now
believe the Federal Reserve will not start cutting its $85
billion of monthly bond purchases until March.
Strategists said the Fed's next policy meeting, on Oct.
29-30, could given an indication whether policymakers have
substantially changed their views on the economy.
Against the Canadian dollar, the greenback surged 0.8
percent to C$1.0374.
Canada's central bank meets eight times a year, and the
final meeting for 2013 is set for Dec. 4.
"A dovish statement from the Bank of Canada catches an
inattentive market. They increased the time it takes for
inflation to return to target and reduced potential growth,"
said Sebastien Galy, foreign exchange strategist at Societe
Generale in New York.
"They still haven't factored in the underlying deflationary
pressures in Canada but are clearly worried, adding some
emphasis on the risk of a housing correction," he said.
EURO STRENGTH WORRIES
The euro has gained 4.5 percent so far this year against the
dollar. It recently hit a two-year peak against a trade-weighted
Strategists said if the euro's ascent gathered pace the ECB
could adopt some form of verbal intervention or other measures
to dampen its strength. A stronger euro is negative for euro
"Euro/dollar is trading at new highs for the year and the
question is, What will the response be from the ECB?" said Chris
Turner, head of FX strategy at ING, in a note to clients.
"Euro zone headline inflation is low, and the ECB could
repeat its February stance that the strong euro increases
downside risks to inflation."