* Some USD short covering seen, though downtrend intact
* Credits enjoy blockbuster week, issuances bloom
* Commodity rally peters out on profit taking
* US Treasuries stabilise, set for biggest drop in 8 mths
By Saikat Chatterjee
HONG KONG, April 29 (Reuters) - The dollar floundered at
three-year lows against a basket of currencies on Friday,
keeping precious metals near record highs, although the risk of
dealers covering bets against the beleaguered U.S. currency in
thin trading looms, especially given holidays in some centres
including Japan.
Though some signs of dollar short covering versus some Asian
currencies, particularly the Malaysian ringgit was seen,
the medium-term outlook continues to be for dollar weakening,
given U.S. Federal Reserve Chairman Ben Bernanke's pledge to
continue with the ultra-easy monetary policy.
Sean Callow, a strategist at Westpac in Sydney said
sentiment towards the dollar is "profoundly bearish with no
catalyst for reversal" at least, until the all important
non-farm payrolls data next week.
With U.S. economic data this week also offering no succour
to the ailing dollar, the dollar's index , which tracks
its performance against a basket of major currencies, fell to
its lowest level since July 2008 before recovering somewhat.
The dollar index is down 7.5 percent this year, making it
one of the world's worst-performing assets.
"The likely indicator of a reversal in the USD's
(mis)fortunes is global equities. A sustained bout of
profit-taking would assuredly spillover into foreign exchange
markets, with the EUR and AUD returning back to earth," said
Michael Woolfolk, strategist at BNY Mellon.
For now, that reversal looked unlikely with world equities
up by some 5 percent in the past two weeks while
Asian stocks outside Japan hovering close to a
three-year peak hit on Thursday.
For the month, Asia-ex Japan is set to rise by nearly 4
percent while its year-to-date gain so far is 5 percent.
On Friday though, stocks ran out of steam as traders took
profits after a recent rally with Australian shares
falling by 1.5 percent led by miners due to the strong Aussie
while rising mortgage rates pushed Hong Kong stocks
lower.
"It's across the board, apart from the banking sector...the
high Aussie dollar is now starting to weigh on this market,
particularly with the miners," Burrell Stockbroking dealer Jamie
Elgar said.
The Australian dollar stood at $1.0902, still
within easy reach of a 29-year peak of $1.0948, having gained
nearly 13 percent since the March lows.
ROARING CREDIT
While equities had a somewhat lukewarm week, Asian credit
markets had a smashing one with investors snapping up issuances
out of the region and credit spreads narrowing substantially.
Primary markets enjoyed one of their best weeks with
Indonesia's $2.5 billion dollar bond sale garnering blockbuster
demand while a Chinese utility company and a Philippine port
operator pushed through perpetual bond offerings.
Robust demand for perpetual bonds or perps indicated that
investors were scampering to lock in high yielding rates in an
otherwise low interest rate environment with outlook positive
for yields.
Weekly average of issuances in the first 17 weeks of the
year is nearly $2 billion helping the Asia ex-Japan year to date
total a whopping $33.45 billion. The weekly average of supply is
nearly a fifth higher than the average for 2010.
COMMODITIES SOFTEN
The broad commodity market rally softened with silver
pulling back by nearly a dollar after rocketing to $49.51 per
ounce, its highest since 1980, while NYMEX crude for June <CLc1>
pulled away from the $113 per barrel mark.
Both Shanghai copper futures contracts <SCFcv1> and wheat
futures too declined.
The 19-commodity Reuters-Jefferies CRB index , a broad
indicator of the commodity market, is however up nearly 10
percent this year, making it the world's best performing asset
group.
Thursday's batch of weak U.S data meant bonds had
yet another good day with benchmark ten-year U.S. yields
steadying near 3.32 percent, well on track for its
biggest monthly drop in eight months.
Elsewhere, the Chinese yuan cracked through the
6.5 per dollar line for the first time, indicating Beijing's
determination to fight inflation and giving a leg up to other
currencies.[]
* For Reuters Global Investing Blog, click on
http://blogs.reuters.com/globalinvesting
* For the MacroScope Blog, click on
http://blogs.reuters.com/macroscope
* For Hedge Fund Blog, click on
http://blogs.reuters.com/hedgehub
(Additional reporting by Ian Chua in SYDNEY, Umesh Desai,
Jongwoo Cheon in SINGAPORE; Editing by Ramya Venugopal)
