* Commodity FX tumbles after China ups bank reserve ratios
* China announcement raises concerns about global recovery
* Dollar supported on CIC comments, downside risks remain
(Updates prices, adds detail)
By Naomi Tajitsu
LONDON, Jan 12 (Reuters) - Commodity currencies slipped on
Tuesday after China said it would tighten banks' reserve
requirements, raising concerns the move may dent Chinese demand
and slow global economic recovery.
Separately, the dollar held gains against the euro and a
currency basket after a Chinese sovereign wealth fund official
said he did not think the U.S. currency would depreciate
further.
China's central bank surprised markets with a statement that
it would raise the reserve requirement ratio by 0.5 percentage
points, effective next week, in the clearest sign yet of
monetary policy tightening. []
Commodity-linked currencies including the Australian, New
Zealand and Canadian dollars hit session lows against the U.S.
dollar, following a sell-off in gold prices. They also tumbled
against the yen.
The announcement underlined the risk tied to those
currencies which, along with commodities, rallied for much of
2009 on the view that the global economy was on a recovery path.
China is a major importer of world commodities and a drop in
its demand is seen as negative for commodity-linked currencies.
"It's an indication that the China authorities are being
reasonably pro-active and it's going to put a bit of a two-way
risk in the idea that commodity currencies are on such a solid
path," said Paul Mackel, currency strategist at HSBC in London.
"It's probably going to keep these currencies under
pressure, at least in the short term."
The Australian dollar <AUD=D4> fell 1.1 percent to the day's
low of $0.9205, pulling it away from a two-month high of $0.9326
hit on Monday. By 1248 GMT, it traded at $0.9250.
Against the yen <AUDJPY=R>, it fell 1.3 percent to a session
trough of 84.48 yen, retreating from 86.20 yen hit on Monday,
its strongest since September 2008.
Other commodity-linked currencies, including the New Zealand
<NZD=D4> and Canadian dollars <CAD=D4>, also fell after China's
announcement, which triggered broad selling in gold <XAU=>.
CIC COMMENTS
The euro <EUR=> slipped 0.2 percent to $1.4485, struggling
after the PBOC announcement.
Earlier, it had hit the day's low around $1.4455 on the back
of comments from China International Corp official Peng Junming
that the dollar had hit bottom and had limited further room to
fall, while the yen would keep falling. []
The comments from China's $300 billion sovereign wealth fund
pushed the dollar to the day's high against the yen <JPY=> at
92.43 yen, before pulling back to around 91.60 yen, down 0.6
percent on the day.
The greenback trimmed its gains against the euro on
lingering concerns last week's U.S. payrolls report indicated
the economy remained in the doldrums, and that interest rates
would not rise until later in the year.
"We're still in a phase of dollar consolidation, but it is
possible that the dollar can weaken in the coming weeks," said
Marcus Hettinger, global currency strategist at Credit Suisse in
Zurich.
"Given the weak payrolls figures, U.S. rate expectations
have fallen, which is weighing on the currency."
Despite Tuesday's gains versus the euro and commodity
currencies, the dollar has started 2010 on the back foot due to
growing expectations the Federal Reserve will keep interest
rates essentially at zero at least through the first half of the
year.
Low rates tarnish the dollar's appeal from a yield
perspective.
(Additional reporting by Neal Armstrong; Editing by Nigel
Stephenson)
