The U.S. dollar was higher against most major currencies Wednesday and notched a nearly four-month high versus the yen as traders focused on worries about the outlook for the Japanese economy.
The dollar traded as high as 99.36 yen and recently changed hands at 99.33 yen, up from 98.14 in North American trade late Tuesday. The dollar was within striking distance of its Nov. 5 low of 99.40 yen.
The dollar index which measures the currency against a trade-weighted basket of six global counterparts, pressed above 89.60 in Asian trading hours, its highest level since April 2006 and up from 89.077 late Tuesday.
The euro fell to $1.2526 versus the dollar from $1.2560. The British pound rebounded to buy $1.4108, up from $1.4045 versus the greenback.
Strategists at Brown Brothers Harriman said haven-related flows continued to support the dollar.
The trigger for dollar gains came from "dismal" data that showed Australia's economy shrank for the first time in eight years during the fourth quarter, they wrote.
The data "clouded the glimmer of optimism about the economy arising from yesterday's decision by the Reserve Bank to halt its series of rate cuts over recent months," the strategists said.
The Australian economy shrank 0.5% in the fourth quarter from the third, according to data released by the Australian Bureau of Statistics Wednesday. Against the year-earlier quarter, the gross domestic product expanded 0.3%. Economists had expected a 0.1% increase on quarter and 1.1% on year. See full story.
The surprise decision by the RBA on Tuesday to hold its key rate steady had boosted the Australian dollar and other higher-yielding currencies, temporarily putting the greenback on the defensive.
The Australian currency fell to 62.87 U.S. cents following the data, according to FactSet, but has since rebounded to trade at 63.92 cents, up 0.3% on the day.
Equity markets were higher, with gains attributed to hopes for further Chinese stimulus measures. See Asia Markets.
But analysts downplayed the potential for a lift in the appetite for risky assets, saying economic concerns and fears about the financial sector continued to underpin the greenback. Global equities this week tumbled to new historical lows, with Wall Street sinking to levels unseen in more than a decade.
The European Central Bank is widely expected to further cut its key lending rate by half a percentage point to 1.5% Thursday amid rising expectations policy makers will eventually be forced to contemplate measures designed to boost the money supply.
"It is probably no more than a matter of sentiment, but the ECB seems less self confident in its strategy than the Fed," wrote strategists at Commerzbank in Frankfurt.
"That is a further string [in] the bow of those market participants who think the U.S. is better at fighting the recession. That is argument enough for a continuation of the (euro) downtrend" versus the dollar, they said.
