Tags: Dollar Rises as China Rate Hike Discourages Risk

Dollar Rises as China’s Rate Increase Discourages Risk Demand

Tuesday, 19 Oct 2010 09:39 AM

The dollar advanced versus all of its major counterparts including the euro as China’s unexpected increase in interest rates discouraged demand for assets related to economic growth.

Australia’s dollar fell from within a cent of parity with the greenback as traders speculated that China’s boost in borrowing costs will curtail demand for commodities. Canada’s dollar dropped to a two-week low before today’s meeting of the nation’s central bank.

“The knee-jerk reaction was to sell off risk,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Equities came off and oil came down and the dollar went up. The commodity-linked, Asian trade-linked currencies like the Aussie and the Canadian dollar, they weakened off substantially.”

The dollar appreciated for a third day versus the euro, gaining 0.5 percent to $1.3870 at 8:34 a.m. in New York, from $1.3934 yesterday. The U.S. currency rose 0.4 percent to 81.60 yen, from 81.27. The euro traded at 113.16 yen, compared with 113.25.

Australia’s currency declined 0.9 percent to 98.02 U.S. cents after rising 0.7 percent to 99.60. It traded stronger than a one-for-one basis with the U.S. dollar on Oct. 15 for the first time since exchange controls were removed in 1983.

Canada’s loonie slid 0.7 percent to C$1.0245 per U.S. dollar. The currency advanced to parity on Oct. 14 for the first time since April.

Bank of Canada

All 18 economists in a Bloomberg News survey forecast the Bank of Canada will hold its target lending rate at 1 percent. The decision is due at 9 a.m. Ottawa time.

China raised its benchmark lending and deposit rates for the first time since 2007 after inflation accelerated to the fastest pace in 22 months.

The one-year deposit rate will increase to 2.5 percent from 2.25 percent, effective tomorrow, the People’s Bank of China said on its website today.

The dollar advanced yesterday versus the euro after Treasury Secretary Timothy F. Geithner said in Palo, Alto, California, that the U.S. will work to preserve confidence in a strong currency and won’t pursue a strategy of devaluation.

Geithner will travel to South Korea this week to meet Group of 20 nations’ finance ministers and central bankers to discuss currencies, stimulus efforts and other economic policies.

Brazil’s Real

Brazil’s real slid 0.8 percent to 1.6875 per dollar after Finance Minister Guido Mantega told reporters yesterday that this “currency war needs to be deactivated.” The government raised taxes on foreign investments in fixed-income securities for the second time in a month to curb the real’s gain.

South Korea’s won was the worst-performing Asian currency, declining 1 percent to 1,130.53 per dollar after Finance Minister Yoon Jeung Hyun said authorities will act whenever “herd behavior” causes sudden moves in the currency.

“The minister’s comments look like part of a movement by emerging-market economies to protect their currencies from a weaker U.S. dollar,” said Sung Jae Man, a foreign-exchange analyst at Tong Yang Securities Inc. in Seoul. “Volatility in the won will decrease if countries reach an agreement at the G-20 meeting.”

The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies including the euro, yen and pound, gained 1 percent to 77.689. It touched 76.144 on Oct. 15, the lowest level since Dec. 11.

The gauge of the greenback has dropped 3.4 percent since Sept. 21, when the Federal Reserve said in a statement following its policy meeting that it’s prepared “to provide additional accommodation if needed” to support the recovery.

Housing starts in the U.S. unexpectedly gained 0.3 percent in September after a 10.5 percent advance in the previous month, the Commerce Department reported. The median forecast of 71 economists in a Bloomberg News survey was for a 3 percent drop.

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The dollar advanced versus all of its major counterparts including the euro as China s unexpected increase in interest rates discouraged demand for assets related to economic growth.Australia s dollar fell from within a cent of parity with the greenback as traders...
Dollar Rises as China Rate Hike Discourages Risk
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2010-39-19
Tuesday, 19 Oct 2010 09:39 AM
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