FOREX-US dollar soars after Chinese rate hike

* Dollar gains, Aussie tumbles as China raises rates

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

* China move sparks risk aversion; dollar still vulnerable
(Updates prices, adds comment, detail, changes byline)

By Wanfeng Zhou

NEW YORK, Oct 19 (BestGrowthStock) – The safe-haven dollar rallied
broadly on Tuesday, while the euro and commodity-sensitive
Australian dollar tumbled after a surprise interest rate
increase from China prompted investors to cut risk exposure.

Investors feared a quarter percentage point rise in China’s
one-year lending rate could dampen Chinese and global growth
and slow the country’s voracious demand for commodities, many
of which come from Australia. [ID:nBJI002412]

“China’s rate increase instantaneously pushed people to
take risk off the table,” said Boris Schlossberg, director of
research at GFT Forex. “(China) is trying to clamp down on
growth and that’s going to reflect badly on Australia, on
Germany, on much of the world economy as it readjusts to the
idea that Chinese growth may not be as torrid as expected.”

The Australian dollar, which last week rose above parity
with its U.S. counterpart for the first time since 1983, was
hit hardest, slipping more than 2 percent to $0.9683 (AUD=D4: ).

The euro was down 1.5 percent at $1.3735 (EUR=: ), off a
$1.4005 session peak, according to trading platform EBS.

The euro hit a session low of $1.3720 on EBS, the weakest
in two weeks, after U.S. stock losses accelerated. The break of
$1.3770 opens the door for a test of $1.37, traders said.

The dollar rose 0.3 percent to 81.49 yen (JPY=: ), its best
daily gain since Japan intervened to weaken the yen on Sept.
15. It hit a 15-year low beneath 81 yen last week. The
Australian dollar/yen exchange rate, an important barometer of
risk sentiment, fell 1.9 percent to 78.88 yen (AUDJPY=R: ).

The U.S. currency also rose 1.6 percent to 1.0340 Canadian
dollars (CAD=: ) after the Bank of Canada left interest rates at
1 percent and cut is growth forecast. [ID:nN19118876]

DOLLAR STILL VULNERABLE

Hobbled by zero interest rates and expectations of more
Federal Reserve easing to come, the dollar has been under
pressure since September. Analysts, however, say the
expectations of Federal Reserve easing have been priced in,
providing an opportunity for investors to take profits.

The dollar’s rebound began after the euro rose above $1.41
last week, an 8-1/2-month high. It continued on Monday after
Treasury Secretary Timothy Geithner said Washington would not
devalue the dollar for export advantage. [ID:nLDE69I00W]

Analysts said Geithner’s comments may mean the United
States was trying to ease global tensions over exchange rates
ahead of a G20 meeting in November. Washington wants China to
allow more rapid appreciation of the yuan. Beijing and others
complain that dollar weakness is stoking inflation by pushing
money into their faster-growing economies.

Analysts cautioned, however, that the dollar’s rebound may
be short-lived given expectations that U.S. interest rates will
remain low relative to most other major economies.

“The fundamentals are still pretty well lined up against
the dollar. I expect it to come under renewed pressure in the
near term,” said Daniel Katzive, currency strategist at Credit
Suisse in New York.

High-yielding currencies such as the Australian dollar and
Brazilian real are likely to attract buyers following their
recent retreat, said Societe General strategist Kit Juckes.

He said the market’s “gut reaction is to sell commodity
block and emerging market currencies” on the China news but
added the news was “not a game changer.”
(Additional reporting by Steven C. Johnson; Editing by Andrew
Hay)

FOREX-US dollar soars after Chinese rate hike