The dollar weakened against most of its major peers as President Barack Obama and Congress remained at odds on a plan to raise the U.S. debt limit needed to prevent a credit-rating downgrade and a default. The greenback touched a record low against New Zealand’s dollar before a U.S. report forecast to show demand for durable goods grew at a slower pace in June. Australia’s dollar climbed to an all-time high after data showed inflation accelerated. The yen reached the strongest level in four months versus the dollar, stoking speculation Japan’s authorities will take steps to weaken the currency to protect exporters. “The weaker dollar direction is a more powerful influence than strong gains in growth-oriented currencies,” said Greg Gibbs, a foreign-exchange strategist in Sydney at Royal Bank of Scotland Group Plc. “The market is certainly factoring in higher risk of a downgrade” of the U.S.’s credit rating. The greenback slid to as weak as 77.78 yen, a level unseen since March 17, before trading at 77.83 yen as of 1:16 p.m. in Tokyo from 77.88 in New York yesterday. The dollar fetched $1.4508 per euro from $1.4511. The pound reached $1.6439, the highest since June 14, before trading at $1.6431 from $1.6405. The U.S. currency sank to a record low 87.65 cents per New Zealand dollar before trading at 87.42 cents, down 0.4 percent on the day. It rallied 0.1 percent to 80.21 Swiss centimes after reaching an all-time low of 79.98 centimes yesterday. Veto Threat The Obama administration threatened a presidential veto of House Speaker John Boehner’s two-step plan to raise the $14.3 trillion debt ceiling and cut $3 trillion in expenditure. A vote on the measure had been scheduled for today and was postponed until tomorrow, still ahead of an Aug. 2 deadline when Treasury Secretary Timothy F. Geithner has said the U.S. will run out of options to prevent a default. A cut of the U.S.’s top AAA credit rating would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 to 70 basis points over the “medium term,” JPMorgan Chase & Co.’s Terry Belton said yesterday on a conference call hosted by the Securities Industry and Financial Markets Association. Standard & Poor’s reiterated on July 21 that the chance of a downgrade is 50 percent in the next three months and said it may cut the nation as soon as August. “Looking for catalysts to sell the dollar is no problem at all,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “If politicians fail to reach an agreement, dollar selling will accelerate. Even if they do agree, spending cuts will slow the U.S. economy.” Australia’s Inflation Demand for durable goods in the U.S. rose 0.3 percent in June after a 2.1 percent gain the previous month, according to economists’ estimates compiled by Bloomberg before the Commerce Department report today. IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, reached 73.421 today, the lowest level since May 5. The index’s 14-day stochastic oscillator was 4.5 today, below the 20 threshold that indicates to some traders an asset’s price has fallen too quickly and is poised to reverse course. Australia’s currency has gained 8.2 percent in the past year, the second-best performer after the franc’s 18 percent surge, Bloomberg Correlation-Weighted Currency Indexes showed. The South Pacific nation’s consumer price index rose 0.9 percent in the second quarter from the previous three months, the Bureau of Statistics said today. The median estimate of economists was for a 0.7 percent increase. Rate Outlook Traders are betting the Reserve Bank of Australia will cut its key rate by 22 basis points in the next 12 months, compared with a decrease of 55 basis points on July 18, according to a Credit Suisse Group AG index based on swaps. “The money market will take out most, but probably not all, of the rate cuts that it’s got priced in for the next 12 months,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. The so-called Aussie reached $1.1063, the most since the currency was freely floated in 1983, before trading at $1.1046 from $1.0956 yesterday. Japanese Finance Minister Yoshihiko Noda yesterday said currency moves have been “volatile” and he’s closely watching the market. Bank of Japan board member Hidetoshi Kamezaki today said the central bank will take needed policy action proactively. Group of Seven nations jointly sold the yen on March 18 after it reached a postwar record of 76.25 to the dollar the previous day, saying in a statement they wanted to reduce “excess volatility and disorderly movements.” Japan’s Finance Ministry sold 692.5 billion yen ($8.9 billion) that month in its first intervention since a unilateral action in September. “I guess Japan has already got a nod from the U.S. on an independent intervention,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. a currency margin company. “It won’t come about straight away, but preparations must have been done.” To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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