FOREX-Dollar stung by higher oil; Swiss franc bid

Thu Feb 24, 2011 6:13pm EST

Related Topics

* Dollar shaky, holds near record low vs Swiss franc

* Euro at 3-week highs after more hawkish ECB comments

* Aussie hits 10-year high vs NZ dollar on diverging rate view

By Ian Chua

SYDNEY, Feb 25 (Reuters) - The dollar nursed heavy losses early in Asia on Friday, hovering above a record low versus the Swiss franc as investors sought safety in other currencies on fears the unrest in Libya will spread to other oil producers.

But a sharp retreat in oil prices from 2-1/2 year highs, sparked by an unsubstantiated rumour Mummar Gaddafi had been shot and Saudi Arabia's assurances it can counter Libyan supply disruption, could offer the dollar a brief respite.

"That safe-haven trade of going long Swiss may just turn around a little bit," a trader at a U.S. investment bank said.

Higher oil prices are seen as having a bigger impact on the U.S. economy given it's reliance on consumer spending to drive growth.

The dollar last traded at 0.9250 Swiss francs , having hit an all-time low of 0.9234 francs on trading platform EBS overnight. It has fallen nearly 4.8 percent against the franc in the last two weeks, its worst showing since June.

Against the yen, the dollar plumbed a three-week low of 81.60 before edging back up to 81.91 yen.

Meanwhile, the euro held near three-week highs, helped by more hawkish comments from European Central Bank officials. ECB policymaker Axel Weber said the only direction for interest rates to go is up.

Other ECB officials recently talked tough about fighting inflation, reinforcing market view that the ECB will hike interest rates before the U.S. Federal Reserve.

The common currency last traded at $1.3809 , having reached a three-week high of $1.3820 overnight, continuing to confound bears worried about the euro zone debt problems.

"The strategy of playing the EUR from the long side does not come without risks," Cyril Beuzit, head of global interest rate strategy at BNP Paribas, wrote in a report.

"The incoming Irish government's stance concerning bank guarantees will be scrutinised, while EU Commissioner Barnier will release the methodology for the upcoming EU stress test on 2 March. The market will not accept weak criteria or an opaque process of stress testing."

The dollar index , which tracks its performance against a basket of major currencies, last stood at 77.065, nearing this year's low of 76.881 set earlier in the month.

"Potentially next up is 76.21, trend line support that links the 2008, 2009 and 2010 lows," said David Watt, strategist at RBC Dominion Securities.

Despite the rise in risk aversion, the Australian dollar rose as high as $1.0124 , before slipping slightly to last stand at $1.0102.

The Aussie was underpinned by strong gains against its New Zealand counterpart , as investors priced in prospects of a New Zealand rate cut following the deadly earthquake.

The Aussie rose to a 10-year high of NZ$1.3509 , up about two cents on the week on diverging outlooks for interest rates. (Editing by Wayne Cole)

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