* Dollar index hits lowest since Sept 2008
* Euro hovers near 2009 highs as USD struggles
* Higher stocks, commodities support Aussie, kiwi
By Rika Otsuka
TOKYO, Sept 16 (Reuters) - The dollar struck a one-year low
against a basket of currencies on Wednesday, staying vulnerable
as investors moved to riskier assets on growing signs of an
economic recovery.
Market participants increased bets on stocks and commodities,
encouraged by better-than-expected U.S. retail sales and New York
manufacturing data, while Federal Reserve chairman Ben Bernanke
said the U.S. recession was most likely over, though he also
warned the recovery would be slow. []
"Market players feel comfortable about doing dollar carry
trades as Bernanke said the U.S. economy has hit bottom, while
global central banks are unlikely to end emergency steps anytime
soon," said Tsutomu Soma, a senior manager of foreign securities
at Okasan Securities.
The dollar index, which measures the greenback's value
against a basket of six major currencies, fell to a one-year low
of 76.406 <.DXY> before inching up to 76.482, down 0.1 percent on
the day.
The index has shed more than 2 percent this month, below any
Fibonacci support, and could fall to 2008 lows of around 70.70.
The euro <EUR=> edged up 0.1 percent from late U.S. trade to
$1.4675, in sight of its 2009 high of $1.4686 struck on trading
platform EBS the previous day.
The dollar held steady at 91.07 yen, staying above a
seven-month trough of 90.18 touched earlier this week.
"As the global recovery continues and risk diversification
takes place we could see the U.S. dollar stay under pressure for
the next six months," said Amber Rabinov, economist, foreign
exchange and international economics at ANZ in Sydney.
"We expect it to test its recent lows on the yen, and
probably fall as low as 87 yen as talk of it replacing the yen as
a funding currency gathers momentum."
Until recently, the low-yielding yen was the currency of
choice for investors who borrow cheap to buy riskier assets or
high-yielding currencies. But with 3-month U.S. LIBOR <LIBOR>
rates falling below Japanese rates, the dollar is replacing the
yen as the funding currency of choice.
With broad dollar-selling picking up pace and showing little
sign of abating, Tokyo traders are worried about the risk of a
sharp fall in the dollar against the yen during Japan's three-day
holiday period starting next Monday.
Traders say some option dealers are staying close to Tokyo
over the long weekend due to such worries.
CHANGE IN JAPAN'S GOVERNMENT
Democrat Yukio Hatoyama is set to take office as Japan's new
prime minister and is expected to announce his cabinet members
later in the day. Hatoyama has pledged to put more money in the
hands of consumers, cut wasteful spending and reduce bureaucrats'
control over policy-making. []
Although the change in the government is not expected to
cause much volatility in exchange rates, traders said caution
towards a higher yen persists as veteran lawmaker Hirohisa Fujii
is expected to become finance minister.
Fujii told Reuters in an interview earlier this month that
Tokyo should not step into forex markets unless exchange rates
move abnormally, and that a strong yen is good for Japan as it
curbs import costs. []
Also in focus will be a slew of U.S. data to be released
later in the day. The U.S. consumer price index (CPI) for August,
second-quarter current account data, August industrial production
numbers and September NAHB housing data are all due.
Of these, CPI and industrial production have the biggest
potential to move markets.
Sterling dipped 0.1 percent to $1.6471 <GBP=D4> after being
slugged by Bank of England Governor Mervyn King's rather downbeat
comments on the UK economy. King said on Tuesday the BoE could
cut the interest rate it pays on commercial banks' deposits,
warning full recovery from Britain's recession would be slow.
[].
Against the Australian dollar, sterling slumped to a 13-year
low of 52.61 pence <AUDGBP=R>.
The Australian dollar <AUD=D4> rose 0.3 percent against the
U.S. dollar to $0.8661, nearing last week's 1-year high of
$0.8677.
(Additional reporting by Anirban Nag in Sydney, Satomi Noguchi
and Masayuki Kitano in Tokyo; Editing by Joseph Radford)
