FOREX-Dollar advances to 1-month high on debt deal hopes

Reuters

* Signs of progress in U.S. debt talks ease default fear

* Dollar hits one-month high versus currency basket

* Dollar up 0.8 pct to hit one-month high versus Swiss franc

* RBA minutes help Australian dollar to 4-month high

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 15 (Reuters) - The dollar climbed to a

one-month high against a basket of currencies on Tuesday, buoyed

by signs of progress on the U.S. negotiations aimed at averting

a default by the United States on its debt obligations.

The higher-yielding Australian and New Zealand dollars

rallied as well, partly on more encouraging fiscal headlines, as

investors increased their tolerance for risky currencies. The

Aussie dollar jumped to a four-month high versus the greenback,

while the New Zealand currency rose to a one-month peak.

The White house said on Tuesday it was encouraged by the

progress in Senate discussions on the debt ceiling, but the U.S.

government was far from completing a deal at this point.

Republicans in the U.S. House of Representatives, meanwhile,

failed to reach internal consensus on Tuesday on how to break an

impasse on the federal budget. But House Speaker John Boehner

said the lower chamber was determined not to allow a default.

Sean Cotton, vice president and foreign exchange adviser at

Bank of the West, in San Ramon, California, believes the

dollar's gains will be short-lived. Even if a last-minute debt

deal is hammered out, the root of the problem, the U.S. budget

conundrum, is just being postponed, he added.

In addition, he said, the "government shutdown is expected

to have hurt the U.S. economic recovery and has convinced many

that the Federal Reserve will have to extend its monetary

stimulus into next year." That should be negative for the

dollar.

In early afternoon trading, the dollar index traded

up 0.4 percent at 80.608, after climbing to 80.703, its highest

since Sept. 18.

The dollar touched a two-week high against the yen at

98.70 yen, with gains at the session peak marking the 50

percent Fibonacci retracement of the move from the Sept. 11 peak

to the Oct. 8 low. It last traded at 98.56 yen, flat on the day.

The dollar rose to a one-month high against the safe-haven

Swiss franc of 0.9177 francs. It was last up 0.5 percent

at 0.9153 franc.

The dollar also rose against the euro, which failed to

benefit from a survey showing better-than-expected German

analyst and investor sentiment.

The euro fell 0.5 percent on the day and last traded

at $1.3496 after touching a two-week low of $1.3478 early in the

day.

Overall, there was a hint of caution about any U.S. deal.

"In order for Congress to get to the finish line, both the

Senate and House have to sign the bill and with 2 days to go

before the U.S. reaches its borrowing limit, it is still not

clear if conservative House Republicans will support the bill,"

said Kathy Lien, managing director at BK Asset Management in New

York.

Douglas Borthwick, managing director of Chapdelaine Foreign

Exchange in New York, believes that as a result of the

protracted talks on the U.S. debt ceiling, the United States

could be downgraded again.

"The fact that we're coming at the last minute upsets

holders of U.S. Treasuries," said Borthwick. "The holders of

U.S. Treasuries should not be in a position whereby they're

wondering a day or two before the deadline whether or not they

will be paid."

Ian Stannard, head of European FX strategy at Morgan Stanley

in London, said the prospect of U.S. central bank asset

purchases staying at current levels for longer could keep

higher-yielding currencies like the Australian dollar well

supported, potentially lifting it toward US$0.9660.

The Australian dollar's surge to a four-month high

against the greenback was helped by minutes of the last Reserve

Bank of Australia meeting, which showed no urgency to lower

interest rates.

The Australian dollar was last up 0.3 percent at US$0.9521,

while the New Zealand unit was flat at US$0.8362.

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