Dollar near lows vs euro; kiwi and Aussie rise

The dollar hovered near a record low against the euro on Friday on lingering worries about the U.S. housing market, while the Australian and New Zealand dollars gained as investors flocked to higher-yielding currencies.
The dollar limped after Federal Reserve Chairman Ben Bernanke on Thursday said that losses on subprime loans -- those to customers with poor credit -- could hit $100 billion and threaten consumer spending.
High-yielding currencies gained, with the New Zealand dollar hitting a 22-year high against the dollar and a 21-year high against the yen, while the Australian dollar scaled an 18-year peak against the dollar and a 16-year peak against the yen.
The fact that U.S. equities have remained on solid footing despite worries about subprime mortgages was creating a favourable environment for carry trades, traders said.
"Even when there is news that could prompt an unwinding of carry trades, for example about U.S. subprime mortgages, the impact tends to be short-lived," said Akira Kato, a senior manager for Bank of Tokyo-Mitsubishi UFJ.
"As long as U.S. equities stay on solid ground I think we will see market players, especially investors, continue to take on risk towards higher-yielding currencies," Kato said.



Carry trades involve the selling of low-yielding currencies such as the yen to invest in higher-yielding currencies and assets.
The euro was steady at $1.3799, within range of a record high of $1.3834 hit earlier this week, when the dollar fell broadly on news that the value of two Bear Stearns hedge funds that bet heavily on subprime loans had evaporated.
The New Zealand dollar climbed to as high as $0.7958 at 0549 GMT, a post-float 22-year high, helped by market expectations for New Zealand's central bank to raise interest rates to 8.25 percent next week from 8.0 percent currently.
The Australian dollar rose as high as $0.8814, its highest level in 18 years.
Bernanke's testimony to the U.S. Senate Banking Committee supported the prevalent view among investors that the Fed was likely to keep interest rates unchanged at 5.25 percent for the rest of the year.
By contrast, central banks in many other major economies are expected to raise interest rates further this year, and the dollar has struggled as a result.
WEAK DOLLAR, WEAKER YEN
The dollar inched up slightly to 122.22 yen, supported by talk that some newly launched Japanese investment trusts targeting overseas assets might sell the yen to buy higher-yielding currencies.
"The dollar/yen has been largely steady because both the dollar and the yen have been weak," said Shogo Nagaya, forex manager at Nomura Securities.
"But the dollar-selling trend against other currencies will continue, and we may see it fall lower next week."
The Australian dollar rose as high as 107.67 yen, its strongest since September 1991, while the New Zealand dollar hit a peak of 97.24 yen, a level not seen in 21 years.
The single European currency rose about 0.15 percent to 168.67 yen, creeping closer to the record high of 168.95 yen hit a week ago.
Traders were on the lookout to see whether China's central bank will lift rates after data on Thursday showed that growth in the country jumped to an 11-1/2-year high in the second quarter.
Analysts say a rise, which would be the third this year, may come as soon as Friday, and currency traders are focusing on what impact such a rate rise might have on Chinese share prices.
A steep fall in Chinese equities could prompt investors to shy away from risk-taking and to unwind some of their bets against the yen, although some traders say the impact could be limited unless such falls lead to a drop in U.S. equities.
Market participants were also awaiting a speech by St. Louis Fed President William Poole on subprime mortgages at 1430 GMT. (Additional reporting by Masayuki Kitano