* 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
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
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
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
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
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
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
"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.