Reuters: US Dollar Report: FOREX-Dollar advances to 1-month high on debt deal hopes

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FOREX-Dollar advances to 1-month high on debt deal hopes Oct 15th 2013, 18:09 Share this Email Print Reprints Tue Oct 15, 2013 2:09pm EDT * Signs of progress in U.S. debt talks ease default fear * Dollar hits one-month high versus currency basket * Dollar up 0.8 pct to hit one-month high versus Swiss franc * RBA minutes help Australian dollar to 4-month high By Gertrude Chavez-Dreyfuss NEW YORK, Oct 15 (Reuters) - The dollar climbed to a one-month high against a basket of currencies on Tuesday, buoyed by signs of progress on the U.S. negotiations aimed at averting a default by the United States on its debt obligations. The higher-yielding Australian and New Zealand dollars rallied as well, partly on more encouraging fiscal headlines, as investors increased their tolerance for risky currencies. The Aussie dollar jumped to a four-month high versus the greenback, while the New Zealand currency rose to a one-month peak. The White house said on Tuesday it was encouraged by the progress in Senate discussions on the debt ceiling, but the U.S. government was far from completing a deal at this point. Republicans in the U.S. House of Representatives, meanwhile, failed to reach internal consensus on Tuesday on how to break an impasse on the federal budget. But House Speaker John Boehner said the lower chamber was determined not to allow a default. Sean Cotton, vice president and foreign exchange adviser at Bank of the West, in San Ramon, California, believes the dollar's gains will be short-lived. Even if a last-minute debt deal is hammered out, the root of the problem, the U.S. budget conundrum, is just being postponed, he added. In addition, he said, the "government shutdown is expected to have hurt the U.S. economic recovery and has convinced many that the Federal Reserve will have to extend its monetary stimulus into next year." That should be negative for the dollar. In early afternoon trading, the dollar index traded up 0.4 percent at 80.608, after climbing to 80.703, its highest since Sept. 18. The dollar touched a two-week high against the yen at 98.70 yen, with gains at the session peak marking the 50 percent Fibonacci retracement of the move from the Sept. 11 peak to the Oct. 8 low. It last traded at 98.56 yen, flat on the day. The dollar rose to a one-month high against the safe-haven Swiss franc of 0.9177 francs. It was last up 0.5 percent at 0.9153 franc. The dollar also rose against the euro, which failed to benefit from a survey showing better-than-expected German analyst and investor sentiment. The euro fell 0.5 percent on the day and last traded at $1.3496 after touching a two-week low of $1.3478 early in the day. Overall, there was a hint of caution about any U.S. deal. "In order for Congress to get to the finish line, both the Senate and House have to sign the bill and with 2 days to go before the U.S. reaches its borrowing limit, it is still not clear if conservative House Republicans will support the bill," said Kathy Lien, managing director at BK Asset Management in New York. Douglas Borthwick, managing director of Chapdelaine Foreign Exchange in New York, believes that as a result of the protracted talks on the U.S. debt ceiling, the United States could be downgraded again. "The fact that we're coming at the last minute upsets holders of U.S. Treasuries," said Borthwick. "The holders of U.S. Treasuries should not be in a position whereby they're wondering a day or two before the deadline whether or not they will be paid." Ian Stannard, head of European FX strategy at Morgan Stanley in London, said the prospect of U.S. central bank asset purchases staying at current levels for longer could keep higher-yielding currencies like the Australian dollar well supported, potentially lifting it toward US$0.9660. The Australian dollar's surge to a four-month high against the greenback was helped by minutes of the last Reserve Bank of Australia meeting, which showed no urgency to lower interest rates. The Australian dollar was last up 0.3 percent at US$0.9521, while the New Zealand unit was flat at US$0.8362. Link this Share this Digg this Email Reprints

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