Dollar Rises to Six-Month High Against Euro as Oil Price Drops

By Stanley White
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Sept. 2 (Bloomberg) -- The dollar rose to its highest since February against the euro on speculation a drop in the price of oil to a four-month low will support economic growth in the world's largest energy consumer.

The U.S. currency advanced to its strongest level in more than two years versus the British pound as Hurricane Gustav weakened before making landfall in Louisiana. Australia's dollar slid to its lowest level in almost a year as economists predict the country's central bank will lower interest rates today for the first time since 2001.

``We're seeing some dollar strength against the commodity and European currencies,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``The decline in oil is helping the dollar. When commodities weaken, you can assume there's a flow of funds back into the dollar.''

The U.S. currency rose to $1.4557 per euro, the highest since Feb. 14, before trading at $1.4577 at 8:26 a.m. in Tokyo from $1.4617 late yesterday. The dollar advanced to $1.7863 versus the pound, the strongest since April 2006. It was at 107.89 yen from 108.14 yesterday. The euro fell to 157.61 yen from 157.95 yen.

The Australian dollar declined to 84.69 U.S. cents, the lowest since September last year, before trading at 84.92 cents from 85.29 cents late yesterday in Asia.

The Reserve Bank of Australia will lower the overnight cash rate target by a quarter-percentage point to 7 percent today, according to 22 of 23 economists surveyed by Bloomberg News. The decision will be announced at 2:30 p.m. in Sydney.

Crude oil for October delivery last stood at $111.40 a barrel. It fell by $4.08 yesterday, the largest decline since Aug. 22. The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net