FOREX-Euro steady, Aussie gains after China reserve hike

* Euro steady; worries on Ireland, wider debt crisis weigh

* Aussie gains after China raises banks’ reserve requirement

* Relief that China did not raise interest rates helps risk

(Updates prices, adds detail, quote)

By Jessica Mortimer

LONDON, Dec 10 (BestGrowthStock) – The euro held steady against the
dollar on Friday while the Australian dollar staged a relief
rally after China increased the reserve requirement for banks
but kept interest rates on hold.

The Aussie — which is most sensitive to monetary tightening
in China given Australia’s close trading links with the country
— dipped briefly after Beijing increased the reserve
requirement by 50 basis points. [ID:nTOE6B907U]

But it soon pushed back up, taking the euro and other
perceived higher risk currencies with it on relief that China
had not opted to raise interest rates as well given another jump
in Chinese exports last month. [ID:nL3E6NA0GA]

The euro underperformed, however, holding up against the
dollar but falling against other currencies, including sterling
(EURGBP=D4: ) and the Swiss franc (EURCHF=: ) as concerns over the
debt crisis in the euro zone continued to dampen sentiment.

“In recent weeks people have been talking about the
possibility of a rate hike in China,” said Niels Christensen,
currency strategist at Nordea in Copenhagen.

“Given they only announced a reserve requirement hike we are
seeing a bit of a relief rally as it has given a small boost to
risk appetite. This has especially helped the Aussie and the New
Zealand dollar.”

The euro was steady at $1.3244 (EUR=: ), staying above a low
of $1.3164 on trading platform EBS on Thursday.

Sentiment towards the euro was shaky after Moody’s said on
Thursday it may downgrade the ratings of some Portuguese banks.
[ID:nWNA6521] The announcement followed Fitch’s earlier decision
to slash Ireland’s rating by three notches. [ID:nLDE6B81AH]

Technical analysts said the euro remained on a downward
trend as intraday highs have been getting lower since Monday.

The next key target for the euro is seen at $1.3150,
followed by its 200-day moving average around $1.3115. Traders
said the euro may fall back to its December low of $1.2970 in
the coming weeks.

Ireland’s government will seek parliamentary approval for an
85-billion-euro IMF/EU rescue package next week, though there
were concerns about political infighting as the opposition
Labour Party pledged to vote against it. [ID:nLDE6B81XS]

Traders say no end is in sight for the debt crisis with
European leaders now clashing over the idea of joint euro zone
bonds. [ID:nLDE6B70R1] French President Nicolas Sarkozy and
Chancellor Angela Merkel meet in Freiburg on Friday to prepare
joint Franco-German positions for next week’s EU summit.
[ID:nLDE6B823X]

AUSSIE GAINS

The Australian dollar rose 0.4 percent to $0.9883 (AUD=D4: ),
recovering after a brief dip to around $0.9845 after China’s
announcement, though it stayed away from Tuesday’s three-week
high of $0.9966.

Analysts warned, however, that a China rate hike was still
possible as the country battles to stem rising inflationary
pressures.

“Everyone is on watch for China, especially ahead of the CPI
figures this weekend. Rumours are that CPI could be north of 5
percent; if that’s the case it will underline the scale of the
inflation problem,” said Jeremy Stretch, currency strategist at
CIBC.

The dollar (.DXY: ) index, which tracks the greenback’s
performance against a basket of major currencies, dipped 0.2
percent to 79.936, struggling to break through the 80.00-81.50
barrier that capped its November rally.

The dollar was off a high of 80.405 reached earlier this
week as healthy demand at a 30-year auction of U.S. Treasuries
on Thursday pushed U.S. yields down after a recent spike that
has boosted the appeal of the greenback. [ID:nN09493895]

Against the Japanese currency, the greenback was down 0.1
percent at 83.56 yen (JPY=: ).

The dollar’s repeated failure since late last month to take
out resistance around 84.40 yen is encouraging many traders to
take profits near that level, leading to expectations that its
83.50-84.50 range will persist for now.
(Additional reporting by Naomi Tajitsu; Editing by Susan
Fenton)

FOREX-Euro steady, Aussie gains after China reserve hike