Dollar steadies in Asia after whippy night

By Ian Chua

SYDNEY (BestGrowthStock) – The dollar found a steadier footing early in Asia on Wednesday, having staged a sharp reversal from a record low versus the Swiss franc, thanks in part to a spike in U.S. Treasury yields, which boosted the allure of the greenback.

But traders said the erratic moves overnight, which also saw the greenback plumb six-week lows below 82.00 yen and the euro hit two-week highs around $1.3274, followed by a recovery, were exaggerated by thin year-end flows.

“Probably U.S. dollar strength will prevail but I’m not laying a lot of positioning on it over this period because the market is very thin,” said a trader at a U.S. investment bank.

“A lot of positioning has been flushed out after last night, so I don’t expect much action today. There’s nothing around in the order books at the moment.”

The dollar index (Read more about the global trade. ), which tracks the greenback’s performance against a basket of major currencies, was last at 80.435 (.DXY: ), having bounced off the overnight low of 79.596.

The turn-around came as U.S. Treasury yields rose across the board with the benchmark 10-year gaining a hefty 16 basis points to just shy of 3.50 percent as dealers sought a bigger concession to take this week’s sales of government debt.

The higher yields helped make the dollar more attractive for any investors chasing better returns.

So far this year, the U.S. dollar index (Read more about the global trade. ) is up about 3 percent, thanks mostly a 5 percent rally in November.

Against the Swiss franc, the dollar fetched 1.0092, off an all-time low around 0.9437. It also bought 82.38 yen, while the euro traded at $1.3104, little changed from late New York levels.

The Aussie came close to retesting a 28-year peak of $1.0182 set in November, rising as high as $1.0153, before retreating to last trade at $1.0092.

Depending on how the Aussie performs from here, a double-top could be in the making, traders cautioned.

“We’ve seen some corporate selling of Aussie above $1.01. It probably will be a bit heavy on any rally but I really don’t see much happening until liquidity picks up in January,” a trader said.

The Aussie is up around 14 percent on the U.S. dollar so far this year, and has climbed a whopping 23 percent on the euro.

However, some analysts doubt the Aussie can perform as well next year.

For 2011, BNP Paribas strategists expect the U.S. dollar to gain support, “especially against the commodity and pro-cyclical currencies which have been driven to over-valuation extremes.”

“Indeed, we believe that the liquidity-driven and quasi-China trades are particularly at risk as we expect the pace of USD liquidity growth to slow. Tightening of monetary policy in Asia, especially by China, to address the increasing inflation fears is likely to be the trigger,” they said.

China on Saturday raised interest rates for a second time in just over two months to fight stubbornly high inflation and analysts expect more to come in 2011.

Markets, particularly commodities, have so far taken in their stride the Chinese rate hike. Oil hit two-year highs this week and was last at $91.49, not far off the high of $91.88, while copper has been hitting a fresh record every day.

Australia is a major exporter of commodities.

(Editing by Wayne Cole)

Dollar steadies in Asia after whippy night