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Dollar trades in narrow band as market eyes PRC

The US dollar traded in a narrow range on Friday as the market mulled a series of currency measures by the Chinese central bank that could help ease US-China trade frictions by boosting the yuan.

The Canadian dollar meanwhile jumped to a 30-year high on the greenback as markets anticipated a rebound north of the border and possibly a hike in interest rates.

The euro was changing hands at US$1.3504 at 9pm GMT, against US$1.3492 in New York late on Thursday.

The US currency gained ground against the New Taiwan dollar on Friday, increasing NT$0.025 to close at NT$33.371.

A total of US$862 million changed hands during the day's trading.

The US currency opened at NT$33.345 and fluctuated between NT$33.345 and NT$33.386.

The yen pared early gains made upon the Chinese news, since the Japanese currency is often seen as a proxy for the yuan.

The US dollar was changing hands at ?121.10, against ?121.29 in New York on Thursday.

Earlier on Friday the People's Bank of China said it would raise benchmark deposit rates by 0.27 percentage points, while lending rates will be increased by 0.18 points.

It will also widen the daily fluctuation band for the yuan, allowing it to appreciate at a faster rate over time.

The moves "will allow the renminbi [yuan] to strengthen at a faster paced against the dollar, at least in theory," economist Jay Bryson at Wachovia Securities said.

This could also give a boost to US exports and possibly help shrink the massive US trade deficit with China, some observers said.

Some analysts said Chinese authorities are walking a fine line as they try to cool the red-hot economy and ease trade frictions without sending shock waves through the global financial system.

"As we have seen in the past, China's efforts to tighten the money supply have caused serious global ripples," John Kicklighter at Forex Capital Markets said.

"It will be interesting to see how the [Chinese] equities markets respond to the announcement Monday morning to signal what is in store for the carry trade and the rest of the globe," he said.

The yen rose initially as markets assumed the Chinese decision would feed into faster currency appreciation throughout the rest of Asia.

However, the yen later retreated, with analysts saying China's move would have little impact for other currencies.

Analysts also pointed out that China's move was mainly a cosmetic one, coming ahead of a meeting of finance ministers from the Group of Eight industrialized nations and a key bilateral economic meeting in Washington.

Meanwhile a stronger-than-expected US consumer confidence indicator gave the dollar some initial support, but it later slipped back against both the euro and the pound.

The University of Michigan consumer sentiment index rose to 88.7 this month from 87.1 last month, above market expectations for a fall to 86.5.

Kicklighter said some traders may have been looking for an even stronger number, which might suggest the US economy is gathering momentum.

"Some of the strength underlying the recent dollar pick up may have been towed by speculation of a big upset from the consumer that would allow for more certainty of an impending rebound in GDP," he said.

In late New York trade, the dollar strengthened to 1.2271 Swiss francs from SF1.2268 on Thursday.

The pound was being traded at US$1.9745 after US$1.9746.

The Canadian loonie meanwhile soared to US$0.9194, its best level since October 1997, before setting at US$0.9179.

Its jump in value is due to "growing anticipation of a key interest rate hike by the central bank," TD Securities analyst Marc Levesque said.
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