Dollar dips, oil's drop hits Norwegian crown, Canadian dollar

[November 04, 2014] By Patrick Graham

LONDON (Reuters) - The dollar slipped against the yen and the euro on Tuesday after a week of gains drove the U.S. currency to its highest since 2010, while Norway's crown and Canada's dollar sank as world oil prices fell.

The Aussie and New Zealand dollars were the biggest movers, bolstered by a steady message on policy from Australia's central bank and expectations of a strong milk auction later in the London session.

But much of the attention in the European session was focussed on the currencies most exposed to oil prices, which fell to their lowest since 2010, after a cut in Saudi prices for the United States.

The U.S. dollar rose to its strongest in more than five years against its Canadian counterpart, C$1.1390, a third of a percent higher on the day. Against the euro, the Norwegian crown fell around half a percent to 8.5490 per euro, its weakest since November 2009.

"The move in the Nokkie this morning is all about oil prices," said a currency dealer with one Scandinavian bank.

"We don't expect oil prices to stabilise here, so there could be more to come. We will need to see 8.55 crowns (per euro) broken for this to continue. It is a very strong level but could even go when the U.S. comes in today."
 

The euro had recovered around 0.25 percent from lows below $1.25 hit on Monday and the yen bounced more than half a percent to 113.40, after falling almost 5 yen since Friday, its worst in 25 years.

There was little faith, however, that the recovery was anything more than a steadying before the next push higher for the dollar.

"I don't think this is anything other than just a small retracement," said Graham Davidson, a spot currency dealer with National Australia Bank in London. "It does seem like more broadly the genie is out of the bottle and the dollar will continue to gain."

DOLLAR RALLY

After retreating as much as 2.5 percent in the first two weeks of October, the dollar index <.DXY> has since taken all that back and more. Its advance reaffirmed the market consensus that it is in the first stages of a multi-year push higher.

That picture was reinforced by the Bank of Japan's surprise move last week to ease monetary policy further, weakening the yen and raising questions about a European Central Bank meeting this week.

The ECB is pushing ahead with a number of measures to spur the moribund euro zone economy, but many analysts expect it will have to take more dramatic action in the months ahead. That will pump more euros into the system and weaken the currency.

Dealers said the expiry of 5 billion euros of options at $1.2500 on Tuesday was keeping markets close to that level.

"The euro (should) remain on the back foot heading into the ECB, with pressure on Draghi to address (the) latest core inflation dip and potential challenges in covered bond purchases," Citi strategist Josh O'Byrne said in a note.

Japanese exporters and hedge funds sold dollars, taking some profit after the dollar rose as high as 114.21 yen on Monday, its strongest since December 2007. Japanese banks said domestic flows were as much as four times average volumes.

Satoshi Okagawa, the senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, said the dollar is likely to retreat against the yen if U.S. jobs data, due on Friday, are weaker than expected, but any decline will probably be temporary.

"The market is taking a bit of a breather ... but in terms of the direction, I think we're still in the stage of testing how far it can go," Okagawa said.

(Additional reporting by Masayuki Kitano in Singapore; Editing by Larry King)

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