Dollar on backfoot, commodity currencies shine

A customer pays her lunch bill at the Other Side Cafe in Boston, Massachusetts October 1, 2009.

SYDNEY (Reuters) - The U.S. dollar was under pressure on Wednesday as investors added to long positions in commodity-linked currencies like the Australian and New Zealand dollars on renewed optimism about a global recovery.

Stocks .SPX climbed, while gold touched a record high. Base metals also made solid gains, all of which gave a strong boost to growth-linked currencies.

The Australian dollar hovered near 14-month highs against the U.S. dollar in the wake of the Reserve Bank of Australia's (RBA) decision to hike the cash rate by 25 basis points to 3.25 percent.

The Aussie traded at $0.8906, having jumped nearly 1.4 percent on Tuesday, with the next target at $0.8960 and then at $0.9000. The New Zealand dollar was strong at $0.7365, with a surge in dairy prices helping at the margins. [nWEL488887].

"The RBA is spearheading the global exit strategy and it is no coincidence that the stronger cyclical commodity countries Norway, Canada, and even New Zealand are likely to lead the way well ahead of their more structurally impaired counterparts-- U.S. and the UK," said Su-Lin Ong, senior economist at RBC Capital.

Expectations that U.S. interest rates will remain low as the economy tries to pull out of recession means U.S. dollar could be the funding currency of choice for carry trades.

Near zero rates have increased the U.S. dollar's appeal in carry trades, where investors borrow in a cheaper currency to buy higher-yielding ones.

The U.S. dollar index, was down 0.57 percent at 76.228, having lost ground steadily after hitting a high of 77.475 last week. It came under pressure on growing talk of forex diversification by oil-producing countries, although some of them denied such a move.

The euro inched up to $1.4730, having risen 0.4 percent on Tuesday. It rose to as high as $1.4764 on Tuesday before running into some profit taking.

On the yen, the euro edged down to 130.52 yen, from 130.62 yen late in New York on Tuesday. The yen held steady at 88.70 per dollar, having gained 0.8 percent in the previous session.

Traders said the yen's latest rise was partly due to Nomura's share sale, which is expected to raise up to $5.6 billion, a part of which is likely to be bought by overseas investors.

Other Japanese banks may join Nomura in raising fresh capital in the coming months to meet new capital adequacy requirements.

Still, the latest rise in U.S. yields and rebounding risk appetite should see the yen run into some resistance around 88 levels, say traders.

(Editing by Wayne Cole)