Dollar Rises Against Commodity Currencies as Oil, Gold Slump

March 21 (Bloomberg) -- The dollar traded at the highest level in at least three weeks against currencies of commodity- producing nations from Australia to Norway after prices of raw materials tumbled on speculation the global economy is slowing.

Norway's krone and Australia's dollar headed for declines this week as commodities had their biggest weekly drop in more than 50 years. Traders exited a range of bets, from a weaker dollar to carry-trade purchases of high-yielding assets including commodities.

``The dollar's rise against commodities currencies is likely to extend into next week,'' said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co., Japan's fifth-largest brokerage by revenue. ``Traders took a calm look at their bets and realized they can't continue to buy commodities in an environment of slowing growth.''

The dollar bought 5.2702 kroner as of 10:14 a.m. in Tokyo from 5.2630 late yesterday, when it touched the highest since Feb. 26. The U.S. currency was up 3.2 percent against the krone this week. Australia's dollar was little changed 90.02 U.S. cents, close to a five-week low and on course for a 4 percent decline this week. The Australian dollar may fall to 89 U.S. cents in a few days, Soma forecast.

The dollar traded at $1.5413 per euro, after a 1.3 percent gain yesterday, the biggest since December. The U.S. currency has rebounded almost 3 percent from a record low of $1.5903 reached March 17. It rose 1.7 percent this week, the first gain since the week ended Feb. 8. The yen was at 153.36 per euro, touching the strongest since August. The dollar bought 99.49 yen from 99.51 yesterday and 99.09 at the end of last week.

Commodity Tumble

Currency moves may be exaggerated today as trading volume will be less than half of normal due to public holidays in many financial markets, Soma said.

The tumble in commodity prices and the dollar's rebound gained momentum after the Federal Reserve on March 18 cut interest rates by 0.75 percentage point to 2.25 percent. The reduction was less than the full percentage point some traders forecast, sapping demand for oil and gold as a hedge against accelerating inflation.

The U.S. Dollar Index traded on ICE Futures in New York, which compares the currency with those of six trading partners, rose for a third day, to 72.8 from 72.144. The gauge fell to a record 70.698 on March 17, the same day the dollar fell to a record low against the euro.

`Next In Line'

``Commodities - one of the few remaining long trades - have turned south,'' BNP Paribas SA strategists led by Hans-Guenter Redeker wrote in a research note yesterday. ``The currency market is next in line, forcing investors out of yielding positions. We underline our bearish commodity currency call. The dollar will rebound.''

The dollar may rise to 5.47 kroner and 85 cents per Australian dollar at the end of this year, BNP Paribas forecast.

Commodity currencies started to slide on March 19, a day after the Fed cut rates and said signs ``of inflation expectations have risen.'' Two policy makers dissented in favor of ``less aggressive action.'' Commodities tend to be used as a hedge against inflation, and when there's less perceived need of that hedge their prices may fall.

Gold posted its biggest weekly drop since 1990, falling from a record $1,032.70 an ounce on March 17. Oil has dropped 8.9 percent from a record this week, and copper had its biggest weekly slide in 10 months.

Credit Woes

Gains in the dollar may be limited by speculation credit market losses will widen following the collapse of the U.S. subprime mortgage market.

CIT Group Inc., the largest independent U.S. commercial finance company, drew on all $7.3 billion of its emergency credit lines yesterday after ratings downgrades left it unable to take out short-term loans.

The Fed, in its first extension of credit to non-banks since the Great Depression, lent $28.8 billion to securities firms as of yesterday. The dollar fell to a 12-year low against the yen, and record lows against the euro and Swiss franc after the U.S. central bank bailed out Bear Stearns Cos. on March 14.

``We're seeing dollar relief against the wrong currencies if we want to view this as a signal that the worst is over,'' Naomi Fink, senior currency analyst in Tokyo at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan's largest publicly traded lender, said in an interview with Bloomberg Television. ``The dollar will drop against the euro and the yen again. With credit market losses, confidence is very important. I don't think confidence is strong enough.''

The dollar may fall to $1.55 per euro, she said, without citing a timeframe.