* Funding currencies drop as global stocks push higher
* Australian and New Zealand dollars outperform on China
* Easy money, low rates pledge buoy risk sentiment
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 18 The safe-haven dollar and yen
fell on Monday after China announced its most sweeping economic
and social reforms in nearly three decades, boosting investor
appetite for higher-yielding currencies such as the Australian
and New Zealand dollars.
China shares posted their biggest gain in more than
two months on Monday, while global shares hit
their highest levels since the start of 2008.
"Risk appetite is strong ... after details of China's reform
proved more dramatic than expected, suggesting a focus on market
liberalization and reforms in both the government role and the
broader corporate structure," said Camilla Sutton, chief
currency strategist, ScotiaBank in Toronto.
The dollar index, which gauges the greenback's value
against a basket of currencies, slipped 0.2 percent to 80.688,
pushing the euro up 0.2 percent to $1.3519.
The euro received some support after data showed the euro
zone's trade surplus grew more than expected in September.
The Australian dollar rose as well, up 0.7 percent at
US$0.9399, while the New Zealand dollar gained 0.3
percent to US$0.8366.
Both the Aussie and kiwi tend to perform well when investors
are prepared to take on more risk or on better prospects for
growth in China.
Kathy Lien, managing director at BK Asset Management in New
York, said these currencies continued to benefit from China's
reform policies "as investors hope that more stability for China
will mean long-term benefits for the global economy."
The yen also lost ground against most currencies, with the
Australian dollar rising 0.1 percent to 94.01 yen and
the New Zealand dollar edging higher to 83.69 yen.
The Japanese currency is considered a safe-haven asset
because it is highly liquid. Both the yen and dollar, with
interest rates near zero, are used to fund the purchases of
riskier in so-called "carry trade" transactions.
The dollar came off highs last week as the Federal Reserve's
chief-in-waiting, Janet Yellen, bolstered hopes that it would
keep it $85-billion-a-month bond purchases intact this year.
Most investors now expect the Fed to start paring stimulus only
in March 2014, meaning there will be more dollars flushing
The European Central Bank has also pledged to keep interest
rates near record lows and may yet take more action while the
Bank of Japan is also set to be aggressive in providing monetary
stimulus to reach its inflation goal. The BoJ will hold a
regular policy meeting this week and is expected to maintain its
Morgan Stanley's head of European currency strategy Ian
Stannard also pointed to reform plans for Japanese pension
funds, which could weaken the yen.
"The suggestions ... are that we could see some
diversification out of JGBs (government bonds) and into
higher-risk assets, and allocations overseas, which should put
pressure on the yen," he said.
Investors are keeping a close eye on upcoming U.S. data to
gauge the timing of any tapering of the Fed's bond buying.
A key piece on data, due on Wednesday, is October retail
sales. Data on Friday showed currency speculators added to more
favorable bets in the dollar and turned even more negative on
the yen in the week ended Nov. 12.