FOREX-Aussie surges on RBA rate hike; U.S. dollar slumps

* Aussie hits parity vs US dollar for 2nd time since 1983

* U.S. dollar suffers, weighed down by QE talk before Fed

* Investors await results of U.S. midterm elections
(Adds comment, updates prices, changes byline, dateline;
previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 2 (BestGrowthStock) – The Australian dollar raced to
a 28-year high against the greenback on Tuesday after a
surprise Australian interest rate hike, while the U.S. currency
fell ahead of a Federal Reserve meeting expected to produce a
fresh round of monetary easing.

The euro traded above $1.40, buoyed by a pick-up in the
euro zone manufacturers’ output. For more see [ID:nLDE6A10TX].

Traders, however, were skeptical that the euro will be able
to sustain gains above this level given uncertainty surrounding
the Fed’s decision on Wednesday and the renewed escalation in
sovereign debt worries.

The Reserve Bank of Australia, meanwhile, raised its cash
rate by 25 basis points to 4.75 percent as a preemptive strike
against inflation. That highlighted the contrast with the Fed
which is widely seen as easing policy further on Wednesday to
help revitalize the U.S. economy and extended the differential
between the two economies’ two-year yields to their widest
since early 2008. Benchmark U.S. rates are close to zero.

Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange, said Australia’s rate hike along with
better-than-expected economic data out of the United States,
Britain, and China the last few days have increased optimism
about the global economy and revived risk appetite,

“We’re seeing elevated stocks, commodities, and stronger
performance of higher-yielding assets. From a global
perspective, the growth outlook looks solid and that’s feeding
some appetite for risk,” Washington-based Esiner said.

In mid-morning trading, the dollar index (Read more about the global trade. ) (.DXY: ) was down
0.8 percent at 76.669 against a currency basket. The Australian
dollar traded 1.3 percent higher on the day at US$1.0011, with
near-term gains seen limited by stop-loss orders around
$1.0015. It hit a peak of US$1.0025 (AUD=D4: ), the highest since
the currency was floated in 1983.


The euro (EUR=EBS: ) gained 1.1 percent to $1.4041, with talk
of demand of a semi-official European name helping boost the
European single currency.

Aside from the RBA rate hike, the flavor of the day remains
the Federal Open Market Committee, which starts its two-day
meeting on Tuesday and looked close to embarking on a second
round of monetary easing. [ID:nN01141530]

Markets generally expect the Fed to commit to buying at
least $500 billion in Treasury debt in the coming months. Much
uncertainty surrounds the scope and pace of purchases, however,
leaving the dollar vulnerable to choppy moves in prevailing

Robert Lynch, senior currency strategist at HSBC in New
York, suggested that if the Fed meets the market’s
expectations, the negative impact on the dollar may not be all
that dramatic as the currency’s decline since the summer seemed
to price in much of that outcome.

He added that the “anticipation of the Fed outcome in the
run-up to Wednesday’s announcement is more likely to work
against, rather than for, the dollar.”

Investors were also keeping an eye on the results of U.S.
mid-term elections being held on Tuesday. Polls continue to
indicate Republicans will take over the House of
Representatives, close the gap on Democrats’ lead in the Senate
and take over a majority of the country’s governorships.

Some analysts have said this could be positive for the
dollar since the Republicans were running on a campaign of
fiscal austerity and reduced government regulation.

HSBC’s Lynch, however, said that is a “gross
oversimplification of what could actually happen.”

But he pointed out that in an “environment where there is
already a good amount of bad news priced into the dollar, we
would not dismiss the potential for those sentiments to work to
the currency’s advantage in the coming days, providing it is
not countered by the Fed and upcoming U.S. economic data.”


Multimedia report on run-up to the Fed meeting:

Top News-U.S. elections:


The dollar edged up 0.2 percent to 80.66 yen (JPY=: ), though
it was still close to the record low of 79.75 yen set in 1995.
The risk of Japanese intervention to weaken the yen was
expected to mount if the dollar slips below 80 yen.
(Additional reporting by Naomi Tajitsu in London; Editing by
James Dalgleish)

FOREX-Aussie surges on RBA rate hike; U.S. dollar slumps