WORLD FOREX: Euro Sinks Against Commodity, EM Currencies
-- Euro hammered against commodity currencies, steady against the dollar
-- Investors await clues from FOMC minutes on further potential quantitative easing
-- Brazilian rate cut expected, with economic fundamentals weak, investors bearing on real
By Laura Clarke and William Kemble-Diaz
The euro was steady against the dollar in European trading Wednesday but hit multi-decade lows against the Australian and New Zealand dollars as currency dealers absorbed news of searing budgetary cutbacks in Spain and awaited more clues on future U.S. monetary policy.
The Swedish krona, Canadian dollar and emerging European currencies also made gains against the euro even as yields on Spanish and Italian bonds turned lower and regional equities recovered as news of Spain's 65-billion-euro ($80 billion) budget package filtered through.
Market strategists said the euro zone was moving in the right direction but that the steps taken so far were still insufficient to resolve its sovereign debt crisis once and for all, meaning the euro would likely continue to underperform.
On the other hand, investors were being spurred by last week's interest rate cuts in the euro zone and China and quantitative easing in the U.K. Commodity-linked and growth-sensitive currencies seen most likely to benefit, particularly if quantitative easing in the U.S. was then added to the reflationary policy mix.
"So foreign exchange investors are predominantly looking at playing these themes by...selling the euro and buying the Aussie or Canadian dollars," said Richard Cochinos, currency strategist at Bank of America Merrill Lynch.
He added that the Swiss National Bank was reinforcing this trend by selling the single currency against the commodity currencies as it accumulated euros in its efforts to stop the Swiss franc from strengthening.
Citigroup, nonetheless, warned against expecting too much from the Federal Open Market Committee's June minutes due at 1800 GMT.
"Hopes that [the minutes] will mark a new trend in FX markets are likely to be dashed," said Todd Elmer, FX analyst. "Indications that the FOMC debated pursuing a more aggressive policy choice should be dollar negative [but] any dollar selloff is likely to be confined to within recent ranges," he said.
In emerging markets, the euro was generally weaker against the eastern European currencies like the Polish zloty, Turkish lira and Hungarian forint.
The Brazilian real was steady at just over BRL2.03 against the buck. The country's central bank is widely expected to cut interest rates with Commerzbank forecasting a half-percentage point cut, in line with the consensus.
"The only thing remaining to confirm the broad-based [Brazilian economic] slowdown is a significant uptick in unemployment," said Peter Kinsella, strategist at Commerzbank.
"The bottom line is that further cuts to Selic rates might be warranted which will put further pressure upon the real," he said, referring to the Brazilian central bank's system for performing open market operations to execute monetary policy.
At 1110 GMT, the euro was trading at $1.2288 against the dollar, compared with $1.2252 late Tuesday in New York, according to trading system EBS. The dollar was at Y79.15 against the yen, compared with Y79.41, while the euro was at Y97.31, compared with Y97.30. Meanwhile, the pound was trading at $1.5566 against the dollar, compared with $1.5515 late Tuesday in New York.
The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 83.137, compared with 83.40 at the close late Tuesday in New York.
(END) Dow Jones Newswires
July 11, 2012 09:18 ET (13:18 GMT)