* Euro and commodity currencies surge
* Markets gear up for more emerging market FX gains
* Australian dollar hits $1.0692, highest since early '80s
(Recasts, updates prices, adds comment, detail, byline)
By Steven C. Johnson
NEW YORK, April 20 (Reuters) - The dollar plummeted on
Wednesday against major and emerging market currencies as the
prospect that U.S. interest rates would remain at record lows
encouraged investors to seek higher returns elsewhere.
The euro hit a 15-month high above $1.45 <EUR=>, while
rising commodity prices and inflation sent the Canadian and
Australian dollars to multi-year peaks. Against major
currencies, the greenback had its worst day in a month <.DXY>.
Perhaps more crucially, traders said, the dollar extended a
multi-week slide against large emerging currencies, hitting
two-year lows against the Brazilian real and Mexican peso.
China also allowed the yuan to touch a record high, and a
top central bank official called for more currency flexibility
to ease inflation. See [] and []
Some analysts said this had markets betting that China
would soon allow the yuan to rise even more quickly, which
would likely put further pressure on the dollar.
"The only reason these countries would let their currencies
strengthen is if they think their competitors for exports will
also let their currencies go," said Douglas Borthwick, managing
director of Faros Trading in Stamford, Connecticut.
Borthwick said a "one-off revaluation of the yuan is not
out of the question" and that he expects that China's currency,
up 1 percent against the dollar this year and 4.5 percent since
mid-2010, could appreciate another 6 percent by year end.
EURO, AUSSIE SOAR
While China and others are tightening policy, markets
expect the Federal Reserve to move slowly in soaking up all the
dollars it has poured into the economy since 2008 to help the
economy rebound from its worst recession since World War Two.
U.S interest rate futures <O#FF> suggest the Fed won't
raise its benchmark rate until the second quarter of 2012.
The European Central Bank hiked rates this month for the
first time since 2008 and is expected to hike again. The
contrast has helped boost the euro, which rose 1.2 percent on
Wednesday to $1.4510, near an earlier 15-month high.
The chase for yields also boosted the Australian dollar to
an almost three-decade high at $1.0692 <AUD=D4>. The currency
benefits from Australia's 4.75 percent interest rate and its
role as a large supplier of raw materials and commodities for
the booming Chinese economy.
The Canadian dollar <CAD=D4> rose to its highest in more
than three years against the greenback, buoyed by Tuesday's
above-forecast Canadian inflation.
The dollar also fell against the yen, down 0.3 percent to
82.38 yen <JPY=>.
GREECE RISKS LINGER
Some analysts, however, said euro strength may be nearing a
peak, particularly if fears that Greece may have to restructure
its debt become reality. A German government adviser on Tuesday
said Greek restructuring was inevitable.
If it were to provoke similar steps in Portugal, Ireland
and possibly Spain, the subsequent hit on European banks and
the broader euro zone economy could drive the euro as low as
$1.20, said Michael Hart, director of FX strategy at Roubini
Global Economics in London
"Nothing is really different between now and when the Greek
fears emerged last year and the euro was below $1.20," he said.
"If anything, the situation is worse. Authorities tried to kick
the can down the road but haven't even kicked it hard enough,
because it's not 2013 we're talking about now but 2011."
But fears about U.S. finances may offset euro weakness.
S&P slapped a negative outlook on the United States' prized
AAA credit rating this week for fear Washington would not act
boldly enough to cut a $1.4 trillion budget deficit, and
emerging central bank attempts to reduce reliance on the U.S.
dollar could help support demand for other currencies.
"There's a desire to hold fewer dollars, and that's going
to be supportive of the euro," said BNY Mellon strategist
Michael Woolfolk.
(Additional reporting by Nick Olivari; editing by Leslie
Adler)
