Dollar Sharply Lower on China Reserve Diversification Talk

Dollar has been extremely weak recently on fear that credit market problems will worsen and force Fed to continue easing. The fall in greenback accelerates today after comments from Cheng Siwei, vice chairman of China’s National People’s Congress, said that China will “readjust” the $1.43 trillion of foreign-exchange reserves, favoring “stronger currencies over weaker ones”, suggesting that China may diversify away from the greenback. Further pressure is seen on the dollar with crude oil surging to new high above $98 a barrel, gold rising to 27 year high above $830 and silver rising . Both are crude oil and gold are expected to remain strong and continue its rally towards $100 a barrel and $850 mark. Dollar fell to new record low against Euro and Canadian dollar, 26 year low against Sterling and 23 year low against Aussie.The Aussie is also lifted by RBA’s 25bps rate hike, raising the overnight cash rate to an 11 year high of 6.75%. The accompanying statement maintained a hawkish tone and expect inflation to climb above 3% in Q1 08. Recent credit crunch in the global economy is expected to have little impact in Australia. The house price index rose 3.% qoq, 10.6% yoy in Q3.