Dollar falls broadly after Singapore widens FX band

By Wanfeng Zhou

NEW YORK (BestGrowthStock) – The U.S. dollar fell to a 2010 low against a basket of major currencies on Thursday while the Australian dollar flirted with parity, as selling in the greenback spread after Singapore widened its currency trading band.

The Australian dollar, which boasts the highest yield among major currencies, soared to its strongest level since the currency was floated in 1983 to US$0.9994, as investors dumped the U.S. currency on expectations the Federal Reserve would again start printing money next month.

Singapore’s central bank increased the slope of the band in which it maintains the Singapore dollar, propelling the currency to a record high. The Chinese yuan hit its highest closing level against the U.S. dollar since July 2005.

“The Monetary Authority of Singapore’s action to widen its dollar band could over time signify more acceptance to U.S. dollar weakness from the Asian periphery,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. That along with China’s move to let its currency strengthen “has sparked another round of U.S. dollar selling, mostly manifested in euro bids through $1.41.

“The U.S. dollar is seen by many in a secular managed downtrend as the market prices in the increasing potential for QE-2 measures,” Spitz said.

The dollar index (Read more about the global trade. ) (.DXY: ), which tumbled 1 percent to its weakest since December at 76.259, is on course for a test of trendline support at 75.95, with its November low of 74.17 then not far away. The 75.95 target is the trendline from two major lows in July 2008 and in November 2009.

The euro surged to a more than eight-month high of $1.4123 on trading platform EBS and faces near-term resistance at $1.4195, the January 25 high. Traders said the euro still has room to go, with strong resistance not seen until $1.45. The pair was last at $1.4059, up 0.7 percent.

After the euro failed to crack $1.40 the previous session, the euro’s moves caught some players by surprise as they had been expecting more consolidation. It triggered stops around $1.4030 and then $1.4050 in Asia and subsequently cracked the $1.41 handle in Europe.

AUSSIE APPROACHES PARITY

With key levels having been broken in most major currency pairs, investors focused on the Australian dollar’s assault on parity.

“The Aussie rally is being driven by strength in the Australian economy together with supply and a general depreciation of U.S. dollars. There are barriers at parity but it’s difficult to see the trend changing,” said Lauren Rosborough, senior currency strategist at Westpac in London.

The Aussie last traded at US$0.9926, up 0.3 percent, with traders saying option barriers at $1.0000 were slowing the rally. It has gained about 11 percent this year and is up more than 20 percent from a low in May.

The dollar also hit the latest in a succession of record lows against the Swiss franc and slid below parity with the Canadian dollar, a level not seen since April.

The greenback fell to a 15-year low of 80.88 yen on EBS, despite wariness about Japanese intervention, and looked set to challenge its record low of 79.75 hit in April 1995.

While traders think the Bank of Japan (BOJ) could intervene at any moment to keep the yen in check, some market participants speculated that Tokyo may prefer to avoid intervention ahead of G20 meetings.

“Eighty yen is going to be a massive psychological level for the BOJ. It adds to the pressure for a massive round of monetary easing in Japan,” said Turner at ING.

Lee Hardman, currency economist at The Bank of Tokyo-Mitsubishi UFJ in London, in a note said judged by many metrics, dollar pessimism is now at “historically extreme levels signaling an elevated risk of a sharp correction higher for the dollar when dollar selling has reached a crescendo.”

(Additional reporting by Neal Armstrong in London; Editing by Chizu Nomiyama)

Dollar falls broadly after Singapore widens FX band