FOREX-Dollar, yen, Swiss franc rise on China short-term rates rise

Reuters

* Chinese money market rates weigh

* Soft U.S. jobs data cements view Fed stimulus to stay

* BoC drops rate hike reference, Canadian dollar tumbles

* Focus shifts to upcoming U.S. data

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 raised concerns about the world's

second-largest economy, driving bids for currencies deemed as

safe.

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 round of risky credit

expansion.

The dollar, however, fell sharply against the yen in the

aftermath of Tuesday's tepid U.S. jobs data that reinforced

expectations that the Federal Reserve will maintain its stimulus

efforts in the near term.

"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$0.9624, while the New

Zealand currency dropped 1.4 percent to US$0.8394.

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, meanwhile, 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

banks.

The euro last traded flat at $1.3778 after earlier

reaching $1.3792, matching Tuesday's high, which was its

strongest since mid-November 2011.

The yen was firmly in demand, with the dollar down 0.8

percent at 97.34 yen and the euro 0.8 percent lower at

134.14 yen.

The Swiss franc also rose, as the dollar slipped 0.3 percent

to 0.8918 franc and the euro fell 0.3 percent to 1.2294

francs.

The dollar index, which gauges the dollar against a basket

of six major currencies, was up 0.1 percent at 79.278. It

fell as low as 79.137, its lowest level since early February.

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 give 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 4.4 percent so far this year against the

dollar. It recently hit a two-year peak against a trade-weighted

basket.

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

zone exporters.

"The dollar fared mixed as concerns about rising interest

rates in China dimmed the spotlight on the sluggish U.S. economy

and how the Fed might put off a taper until next year," said Joe

Manimbo, senior market analyst at Western Union Business

Solutions in Washington D.C.

"Watch for the spotlight to intensify on the U.S. economy

Thursday with key readings due on jobless claims, the trade gap

and new home sales," he said.

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