* Dollar falls 0.7 pct vs Swiss franc after government move
* Euro helped by short squeeze, German and French surveys
* Canadian dollar falls to new 4-1/2-year low
By Laurence Fletcher
LONDON, Jan 23 The Swiss franc rose against the
U.S. dollar on Thursday after the Swiss government raised the
level of capital that banks must hold against their mortgage
book, tightening monetary conditions.
The euro also rose against the dollar after surveys of
French and German business activity came in above
Comments from the Bank of Canada, which said currency
depreciation should help exports, knocked the Canadian dollar to
a 4-1/2-year low, however, while the Australian dollar was hit
by a disappointing survey of Chinese manufacturers.
The U.S. dollar was 0.8 percent lower at CHF0.9043
and the euro was 0.2 percent lower at CHF1.2325 after
the Swiss government's move, which coincided with this week's
World Economic Forum in Davos.
The Swiss government cited "a considerable risk for the
stable development of the economy" driven by strong growth in
mortgage loans and residential property prices.
"This clearly shows the SNB (Swiss National Bank) is on a
path where it can get more restrictive," said Ulrich Leuchtmann,
head of currency research at Commerzbank in Frankfurt.
"It limits the upside potential for euro-Swiss franc," he
added. "I don't think they'll abandon the 1.20 (peg of the Swiss
franc to the euro) but there will be enough speculation in the
market about how long it can continue."
The euro jumped 0.6 percent against the dollar to $1.3624,
helped by a squeeze on traders betting against the single
currency and data showing Germany's private sector grew at its
fastest pace in more than 2-1/2 years in January. French
business activity also shrank less than forecast.
"Those (investors) who had euro shorts for not a long time
took the opportunity of momentum fading out to scale out of
their positions," said Commerzbank's Leuchtmann.
The loonie, as the Canadian dollar is known, fell as low as
C$1.1157 per dollar, its lowest level since July 2009,
with volumes well above average levels over the past month. That
brings its decline against the greenback this year to 5 percent.
The Bank of Canada took a leaf out of the Reserve Bank of
Australia's (RBA) play book and tried to talk down the loonie,
saying in its Monetary Policy Report that a strong currency is
still hampering the country's exports.
Although the central bank stopped short of saying its next
move is likely to be a rate cut, it also said it had become more
concerned about weak inflation than three months ago.
"It seems as though Governor Stephen Poloz may revert back
to the BOC's easing cycle as the persistent slack in the real
economy continues to drag on price growth," said David Song,
analyst at DailyFX.
"At the same time, the BOC made it increasingly clear that a
further depreciation in the Canadian dollar should further
assist with the rebalancing of the real economy."
Although the Aussie appeared to have found good support
below 88 U.S. cents after surprisingly robust inflation at home
on Wednesday, it fell 0.6 percent to $0.8796 on Thursday
, near 3 1/2-year low of $0.8756 hit on Monday.
That came after the flash reading of the Markit/HSBC
Purchasing Managers' Index (PMI) for China fell to 49.6 in
January from December's final reading of 50.5.
One trader played down the importance of the survey,
however, saying the fall offered a buying opportunity back up to
The New Zealand dollar was 0.5 percent lower at $0.8269
The falls will be good news for hedge funds, who are betting
that both currencies will weaken against a strengthening U.S.
dollar as the Federal Reserve scales back its bond-buying.