Dollar rises versus basket of currencies

The dollar was supported near a 9-month high against a basket of currencies on Tuesday with the market gripped by fear that the debt crisis in Europe could unleash substantial damage on the global economy. The euro hit a nine-month low in early Tuesday trade before posting a slim recovery, while the Australian dollar slipped to a one-year trough as market players continued to pull funds out of shares, copper and other risky growth-linked assets.
"The market has started the new quarter with more concerns over the global financial system and the ability of authorities to contain the increasing sense of doom over the European financial system," said Greg Gibbs, a strategist at RBS in Sydney. Eurozone finance ministers are reviewing the size of the private sector's involvement in an international bailout package for Greece in a move that could undermine the aid programme and intensify the threat of a Greek default.
The euro fell to as low as $1.3163 early on Tuesday before stepping back to around $1.3207, up slightly on short-covering from $1.3170 in late US trade. One possible target for the currency is around $1.3040, a 61.8 percent retracement of its long-term rally from around $1.1876 in June 2010 to $1.4940 in May 2011. The euro also hit a 10-year low of 100.77 yen and stayed just above a six-month trough of 85.31 pence hit last month.
But as speculators' net euro short positions reached their highest in more than a year last week, as shown in data from the US financial watchdog, the euro could be spared from massive falls in the near term, some analysts said.
Instead speculators may be inclined to sell commodity currencies such as the Australian dollar, positioning on which is closer to neutral. The Aussie fell to a one-year low of $0.9454, down nearly 15 percent from a 29-year high in July, as an increasing number of market players start to worry about the soundness of Chinese growth, which many investors have counted on as the main growth driver globally as developed economies flop.
The currency extended losses after the Reserve Bank of Australia opened the door to possible easing as early as next month if upcoming inflation data proves to be benign, saying an "improved inflation outlook would increase the scope for monetary policy to provide some support to demand". It last stood at $0.9512, with critical support seen at $0.9390-9405. The Canadian dollar also slipped to a one-year low of C$1.0560. The greenback was little changed against the yen - as usual in recent months - at 76.66 yen.