Forex - US dollar mixed in Sydney trade as players digest Fed discount rate cut

Forex - US dollar mixed in Sydney trade as players digest Fed discount rate cut

	Published : Mon, 20 Aug 2007 02:13 By : Agencies Print this Story

SYDNEY (Thomson Financial) - The US dollar was mixed against major currencies in Sydney morning trade Monday, with investors digesting the news of a cut in the US Federal Reserve's discount rate Friday.

The Fed's 50 basis points reduction, aimed at stabilising financial markets, came as a surprise because the Fed typically only adjusts rates at its regular policy meetings. The discount rate is the rate the Fed charges for funds it lends to commercial banks.

The news was warmly received on Wall Street with all the major indices putting on solid gains.

At 10.30 am (0030 GMT) in Sydney the US dollar was at 114.36 yen, up from 114.00 in late New York trade Friday while the euro was at 1.3484 dollars, up from 1.3475.

GFT senior financial analyst Ian Copsey said the local trading session began timidly as traders sought to work out new strategies in the wake of the Fed action.

'Most probably we will not see too much movement until Europe joins the fray later and even then early trades will be more like dipping a toe into a hot bath to judge the temperature,' Copsey said.

He said the Fed's move should help calm recent market jitters about credit tightness although there could still be further negative developments in the months ahead.

'The coming months to the end of the year are likely to be nervous ones, with periods of optimism alternating with pessimism,' Copsey said.

NAB Capital Markets currency strategists said the Fed's move will help increase risk appetite in the short term, taking some of the recent downward pressure off high yielding currencies such as the Australian and New Zealand dollars. Both currencies fell sharply last week as yen carry trades were unwound amid a shift away from forex bets deemed to be too risky.

Looking forward, the strategists said interest rates will be the key driver for the Australian and New Zealand dollars, with the Aussie likely to be favored as Australia's central bank may further hike rates in the next 3-6 months while the New Zealand's central bank's next move is expected to be a rate cut in 2008.

Last week's 8.8 percent fall in the Australian dollar against the greenback was the largest weekly decline since the floating of the currency in December 1983.

Sydney 10.30 am (0030 GMT)

US dollar

114.36 yen

1.2067 sfr

Euro

1.3484 usd

154.26 yen

1.6277 sfr

0.6819 stg

Sterling

1.9781usd

226.25 yen

2.3866 sfr

Australian dollar

0.7948 usd

0.4016 stg

90.925 yen

New Zealand dollar

0.6919usd

bruce.hextall@thomson.com