* U.S. dollar down across the board on rate view
* Aussie dollar hits 14-mth high after RBA raises rates
* UK Independent reports talk to replace US$ in oil trade
* Oil states say no talks on replacing dollar
(Adds comment, details, updates prices, changes byline)
By Leah Schnurr
NEW YORK, Oct 6 (Reuters) - The U.S. dollar fell across the
board on Tuesday after an interest rate hike in Australia
underscored concerns the Federal Reserve will lag other central
banks in ending its loose monetary policy.
Adding to pressure on the dollar was a British newspaper
report that Gulf Arab states were in secret talks with Russia,
China, Japan and France to replace the greenback with a basket
of currencies in trading oil. Big oil-producing countries
denied the report. For details, see [].
The Australian dollar advanced to a 14-month high against
its U.S. counterpart after the Reserve Bank of Australia (RBA)
raised its key cash rate by 25 basis points to 3.25 percent,
becoming the first major central bank to hike as the global
financial crisis eases. []
Expectations for prolonged, low U.S. interest rates, due to
tepid economic recovery in the United States, mean investors
are less enthusiastic to hold dollar-denominated assets.
Near zero interest rates have also increased the dollar's
appeal in carry trades, where an investor borrows a low
interest rate currency and uses the funds to invest in
higher-yielding assets in other countries.
"Definitely there's a concern about the Fed being a laggard
and the issue that raises is will the U.S. dollar be the
primary funding currency for carry trade activity," said
Gareth Sylvester, currency strategist at HiFX in San
Francisco.
"I don't think in reality any economist or analyst wants to
see the Fed make any rush decisions and start raising rates due
to market expectations," Sylvester added.
In midday trading, the ICE Futures U.S. dollar index
<.DXY>, which tracks the greenback versus a basket of six major
currencies, fell 0.4 percent to 76.333, inching back towards a
13-month low of 75.827 hit in late September.
Stock markets worldwide rallied following the RBA move as
optimism grew the global economy was recovering, putting
further pressure on the dollar as safe-haven demand dwindled.
"It's the latest sign that the global recession is abating,
albeit at a slow pace," said Omer Esiner, senior market analyst
at Travelex Global Business Payments in Washington.
The euro <EUR=> rose 0.4 percent to $1.4711 and the dollar
fell 0.8 percent to 88.76 yen <JPY=>, near a recent eight-month
low of 88.23 yen hit on electronic trading platform EBS.
AUSSIE SURGES
The Australian dollar <AUD=> rallied as high as US$0.8919,
according to Reuters data, and last traded up 1.2 percent at
US$0.8875. The New Zealand dollar <NZD=> also hit a 14-month
high before easing off and was last at US$0.7318, up 0.1
percent.
For a graphic comparing central bank rates, click here:
http://graphics.thomsonreuters.com/109/AU_CBRTS1009.gif
Some traders said the Australian dollar would push higher
on expectations of further monetary tightening. But others said
more rate increases were already factored in and the Aussie's
upside would probably be limited around US$0.90.
Mitul Kotecha, head of global foreign exchange strategy at
Calyon, said while the RBA has set the tone for other central
banks, most will likely wait for several months.
"The widening yield advantage at a time when the search for
yield is intensifying points to further appreciation of the
Australian dollar, especially as the RBA, unlike other central
banks, does not seem to be particularly concerned about
currency strength," Kotecha wrote in a research note.
(Additional reporting by Wanfeng Zhou, Editing by Chizu
Nomiyama)
