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Tuesday in Asia, the U.S. dollar tumbled against its major counterparts after Britain's Independent newspaper reported that Arab states were in talks to end the use of the dollar for oil trading.
The dollar slumped to a new 14-month low against the kiwi, 4-day low against the yen, 5-day low against the loonie and the aussie and an 8-day low against the euro and the franc.
In the most profound financial change in recent Middle East history, Gulf Arabs are planning - along with China, Russia, Japan and France - to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar, Britain's The Independent newspaper reported today.
The U.S. dollar slipped in reaction to the report written by Middle East correspondent Robert Fisk and monitored on The Independent's Web site.
"Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars," said the report. It added that France had also been involved in the talks.
The Independent said U.S. authorities were aware that the meetings had taken place but had not discovered the details and were "sure to fight this international cabal".
The issue of shifting oil trade away from the U.S. dollar has been raised occasionally in recent years, but analysts and experts say it is unlikely to occur any time soon.
However, Iran began settling most of its crude oil exports in non-dollar currencies several years ago, primarily the euro, but the actual price for its oil is still set in dollar terms.
The dollar, which closed yesterday's trading at 1.4650 against the euro fell to an 8-day low of 1.4711 in early Asian deals on Tuesday. The next downside target level for the U.S. currency is seen at 1.484.
After hitting a fresh 1-year low of 1.4845 against the euro on September 23, the dollar gained 2.4% and reached a 3-week high of 1.4483 on October 02. But the euro recovered yesterday on encouraging services PMI reports from major European economies.
Reports showed yesterday that service sector activity in Germany reached its second highest level in September since July 2008 and the Euro-zone service sector activity improved for the first time in 16-months in September.
Thus far, the dollar has lost 1.5% against the euro from Friday's 3-week high.
During early Asian deals on Tuesday, the dollar slipped to an 8-day low of 1.0281 against the Swiss franc. This may be compared to yesterday's closing value of 1.0324. On the downside, 1.025 is seen as the next target level for the dollar.
The dollar has dropped 1.7% against the franc since it reached a 3-week high of 1.0455 on October 01.
The dollar plummeted to a 4-day low of 88.99 against the Japanese yen during early Asian deals on Tuesday. If the dollar-yen pair weakens further, it may target the 88.6 level. At yesterday's close, the pair was quoted at 89.58.
The dollar-yen pair slumped to an 8-month low of 88.25 on September 28, down 13% from a 5 1/2 -month high of 101.46 hit in April. Although the dollar-yen pair recovered on September 29, it weakened again in early October.
A rally in most Asian stocks today reduced demand for the safe-haven greenback. The stock markets across the Asia-pacific region gained as upbeat U.S. services data buoyed investors, offsetting the disappointment over U.S. payrolls last Friday.
The Institute for Supply Management reported yesterday that activity in the service sector expanded for the first time in a year in September, with the headline index of activity in the sector coming in higher than economists had estimated.
The ISM said its index of activity in the service sector rose to 50.9 in September from 48.4 in August, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to increase to a reading of 50.0.
In early Asian deals on Tuesday, the dollar edged down to 1.5979 against the pound. The next downside target level for the dollar is seen at 1.613. The pound-dollar pair was worth 1.5939 at Monday's close.
Against the NZ dollar, the U.S. currency declined to its lowest level since August 01, 2008 during early Asian deals on Tuesday. The kiwi-greenback pair that closed yesterday's trading at 0.7316 is presently worth 0.7348. If the greenback falls further, it may target the 0.740 level.
After hitting a 6-1/2 -year high of 0.490 in March 2009, the greenback weakened 33% against the kiwi as prospects of a global economic revival spurred demand for higher-yielding assets.
The greenback dropped 11% against the kiwi in the second quarter as the New Zealand economy unexpectedly emerged from recession during this period. The economy expanded by 0.1 percent for the three months through June 2009, marking the first expansion after 15 months of contraction.
During early Asian deals on Tuesday, the U.S. currency tumbled to a 5-day low against the Aussie as the latter surged up following the Reserve Bank of Australia's surprise decision to raise its benchmark interest rate from a 49-year low by a quarter percentage point.
Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.25 percent from 3 percent in Sydney today, amid signs the nation's economy is strengthening.
Australia is the first Group of 20 nation to raise borrowing costs since the start of the global financial crisis more than a year ago. Rising job vacancies, retail sales and house prices, plus surging business and consumer confidence support Stevens' view the economy is accelerating enough to scrap the bank's "emergency" rate setting.
At present, the greenback is trading at a 5-day low of 0.8848 against the aussie with 0.8861 seen as the next target level. The aussie-greenback pair closed yesterday's North American session at 0.8781.
The U.S. currency that closed yesterday's trading at 1.0703 against the Canadian dollar plummeted to a 5-day low of 1.0684 during Asian deals on Tuesday. If the greenback-loonie pair slides further, it may target the 1.059 level.
The greenback has lost 2.5% against the loonie from Friday's 4-day high of 1.0962.
In the upcoming European session, the Swiss September CPI and the U.K. August industrial production are scheduled for release.
The Canadian building permits for August and the Ivey PMI for September are due in the North American session.
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