The yen climbed to a three-year high against the euro and gained versus the dollar on bets central banks will lower borrowing costs to limit the global economic slump, encouraging investors to sell higher-yielding assets.
Canada's dollar dropped to the lowest against the greenback since August 2005 as the central bank cut its main lending rate. Australia's currency fell as policy makers signaled they may cut borrowing costs further. The dollar rose to a 19-month high against the euro on bets the European Central Bank will reduce interest rates at a faster pace than the Federal Reserve.
``The element of risk aversion helps the dollar and the yen, which has been the trend for a while,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments LLC in Boston. ``The convergence of interest rates will overtake the risk aversion element to become the most important support for the dollar going forward.''
``It's probably lending support to the dollar as investors pull their money out of emerging-market countries,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York.
Canada's currency dropped as much as 2.5 percent to C$1.2208 per U.S. dollar after the Bank of Canada reduced its benchmark interest rate by a quarter-percentage point to 2.25 percent. Policy makers said in a statement that ``some further monetary stimulus will likely be required.''
The Australian dollar fell 2.6 percent to 68.63 U.S. cents as minutes of the Reserve Bank's Oct. 7 meeting showed policy makers said inflation will slow at a faster rate than previously expected as the economy slows, fueling expectations for another cut. They lowered the rate at this month's meeting by 1 percentage point, the most since 1992, to 6 percent.
Investors bet the ECB will lower borrowing costs by another 0.75 percentage point by June after cutting the main refinancing rate by a half-percentage point to 3.75 percent on Oct. 8, part of coordinated reductions by major central banks.
``The economic fallout of the crisis will lead to more aggressive policy actions in major countries,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. ``The yen and the dollar will be the beneficiaries.''
The ICE futures Exchange's Dollar Index, which tracks the greenback versus the currencies of six major U.S. trading partners, touched 83.70 today, the strongest since March 14.