FOREX-Dollar up, Aussie tumbles after China rate hike

* Dollar gains, Aussie tumbles as China hikes rates

* Market awaits a host of Fed speakers for clues on QE

* U.S. Treasury’s Geithner comments support dollar

(Updates prices, adds reaction to China rate hike)

By Jessica Mortimer

LONDON, Oct 19 (BestGrowthStock) – The dollar gained while the
Australian dollar and other commodity-linked currencies fell
sharply on Tuesday after China’s central bank raised interest
rates, sparking a sell-off in perceived riskier currencies.

The People’s Bank of China surprised markets by raising its
benchmark one-year lending and deposit rate by 25 basis points
effective from Oct. 20, the first rate increase in nearly three
years. [ID:nSGE69I0HU]

The euro extended losses against the dollar on the news, but
the Australian dollar was one of the main losers, with investors
concerned the move could dampen growth in China, hitting
commodity-linked economies in particular.

“The gut reaction of the market is to sell commodity block
and emerging market currencies,” said Kit Juckes, currency
strategist at Societe Generale.

But he added the move was “not a game changer”, and that
investors would be looking to pick up these currencies on dips.

The dollar extended earlier gains which came after U.S.
Treasury Secretary Tim Geithner said the United States would not
engage in dollar devaluation and needed to work hard to preserve
confidence in a strong dollar. [ID:nN18287076]

At 1155 GMT, the euro (EUR=: ) was down 0.6 percent, hitting a
session low of $1.3853, taking it well below Friday’s eight and
a half month high of $1.4161, hit on trading platform EBS.

The euro turned lower again, having earlier cut losses after
Germany’s ZEW institute said its economic sentiment index was at
-7.2 in October, down from -4.3 in September but better than
forecasts of -8.0. [ID:nLDE69I0WE].

The Australian dollar tumbled more than 1 percent on the day
to hit a session low of $0.9776 (AUD=D4: ), a steep fall from
around $0.9885 before the China announcement.

DOLLAR FIRMER

Against a basket of currencies the dollar (.DXY: ) rose to a
session high of 77.720, its strongest in five days. Technical
analysts say it needs to extend above its Oct. 12 high of 77.93
to signal a short-term bottom is in place after Friday’s
10-month trough of 76.144.

The U.S. currency has been backed by a view among many in
the market that the monetary easing expected from the U.S.
Federal Reserve next month is largely priced in.

But the market must wait to see how sizeable the QE will
actually be. Until then, short-term players were simply flipping
positions within tight ranges, traders said.

“Comments from Geithner and a reversal in short dollar
positions is pushing it higher,” said Gareth Berry, currency
strategist at UBS, Singapore. “But this will not last too long
with many waiting to see what the Fed will do next month.”

A host of speakers from the Fed are due to speak on Tuesday.
More and more policymakers are signing up for QE, so any
indications how far the U.S. central bank will go to stimulate
the economy could weigh on the dollar.

Fed Chairman Ben Bernanke is scheduled to give brief remarks
while New York Fed President William Dudley, Chicago Fed chief
Charles Evans, Atlanta Fed chief Dennis Lockhart, Minneapolis
Fed President Narayana Kocherlakota and Dallas Fed President
Richard Fisher are expected to speak later in the day.

Analysts said Geithner’s comments on the U.S. dollar ahead
of the G-20 meeting meant the United States was trying to work
out an agreement with emerging economies like China which would
ease the currency tensions that have marked the past few weeks.

The dollar rose 0.4 percent against the yen to 81.59 yen
(JPY=: ), creeping further away from a 15-year low of 80.88 hit
last week and a record low of 79.75 set in 1995.
(Additional reporting by Anirban Nag; Editing by Catherine
Evans)

FOREX-Dollar up, Aussie tumbles after China rate hike