FOREX-Swiss franc softer, commodity currencies shine

Tue Aug 30, 2011 9:46am IST

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* Improved risk appetite weighs on safe-haven currencies

* Commodity currencies among best performers

* Dollar index, under pressure from easing hopes, clings on above key support

* U.S. Fed minutes next focus for markets

By Hideyuki Sano and Ian Chua

TOKYO/SYDNEY, Aug 30 (Reuters) - Safe-haven currencies such as the Swiss franc remained under pressure on Tuesday while commodity currencies held firm after a solid performance from riskier assets the previous day, though persistent worries about the global economy mean the tide could change at any moment.

The euro also held near a two-month high hit on Monday and some traders think it may have broken above its holding pattern from the last few months, though many market players said that overwhelming debt problems in the euro zone are likely to keep the single currency in check.

"Looking at the tension in the dollar money market, it's hard to see risk asset prices continuing to rise," said Minori Uchida, senior analyst at Bank of Tokyo-Mitsubishi UFJ. "The market is essentially in a lull."

A combination of factors, including a 14 percent rally in Greek stocks sparked by merger news in the country's battered banking sector and better-than-expected U.S. consumer spending data helped fuel risk appetite.

This saw the Swiss franc, already hit by news that UBS was considering charging a fee to deter clients from hoarding the safe-haven currency, fall further across the board.

The dollar edged up 0.2 percent to 0.8170 Swiss francs after reaching a five-week high of 0.8239 overnight. The euro was at 1.1863 francs , not far off a seven-week high of 1.1970 francs touched on Monday.

The franc has fallen steeply in the last two weeks after the Swiss National Bank slashed interest rates to zero and flooded the market with francs. The bank has threatened more action to counter what it says is a "massively overvalued" franc.

STILL WARY

The yen, also highly sought after in times of market stress, lost ground as well. The dollar edged up to 76.86 yen , pulling further away from an all-time low around 75.94 set earlier in the month, as market players stayed wary of yen-selling intervention by Japanese authorities.

Finance Minister Yoshihiko Noda, who oversaw Japan's massive intervention earlier this month, is set to become prime minister on Tuesday, suggesting no change in Japan's currency policy.

The best performers were commodity currencies such as the Australian dollar, which stormed past a series of technical resistance levels including its 55-day and 100-day moving averages to reach a four-week high at $1.0686 .

That has cleared the way for the Aussie to test $1.0809, a 76.4 percent retracement of its decline from $1.1081 to $0.9927 between late July and early August.

The New Zealand dollar has gained 1.4 percent since the start of the week, climbing to a one-month peak around $0.8526 from $0.8460 in New York, with stop-loss buying triggered above $0.8510.

Traders warned the moves in the kiwi and other currencies occurred in volumes thinned by a holiday in London on Monday and a hurricane sweeping through New York. Singapore is on holiday on Tuesday.

Further choppy trading was seen likely to persist in the last week of the Northern-hemisphere summer holidays and into the Sept. 5 U.S. Labor Day holiday.

Still, against the backdrop of improved risk appetite, the common currency gained on the greenback, rising to a near two-month high of $1.4550 on Monday. It last traded at $1.4520 in Asia on Tuesday, up slightly on the day.

Even the risk of the European Central Bank keeping rates on hold well into next year, after ECB President Jean-Claude Trichet said the bank was reviewing the risks to price stability, failed to dampen the spirits of euro bulls.

Its chart outlook brightened, after it broke above important highs hit in recent months at 1.4518 and 1.4537 but strong offers were lined up above $1.4560 and bears thinks concerns over debt and the banking sector are likely to cap the currency.

The euro's firmness is the flipside of weakness in the dollar, which has been weighed by speculation of more easing from the Federal Reserve as fears of U.S. recession rise.

"Although yesterday's U.S. data was pretty good, people are talking about more easing by the Fed, keeping pressure on the dollar. If upcoming data comes in weaker, there will be talk about QE3," said Tsutomu Soma, manager of foreign securities at Okasan Securities, referring to a third round of quantitative easing.

The dollar's index against a basket of six currencies stood at 73.86 , just above strong support around 73.40-50.

Minutes of the Fed's Aug. 9 meeting due out later on Tuesday and speeches by Fed officials Charles Evans and Narayana Kocherlakota will be closely watched as market players looked for any hints on what the divided central bank will do at its policy meeting on Sept 20-21.

"Expect to learn more about the pros and cons of balance sheet duration-extension, more QE and cutting the interest rate on excess reserves as well as the option that was selected - extension of the 'extended period' language through mid-2013," BNP Paribas analysts wrote in a note. (Additional reporting by Antoni Slodkowski, Ian Chua in Sydney; Editing by Joseph Radford)

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