Australian dollar soars as RBA becomes first major central bank to hike rates LONDON (MarketWatch) -- The dollar remained lower versus most major rivals Tuesday, weighed down in part by a British newspaper report that Gulf oil producers, in concert with China, Russia, Japan and France are planning to eventually end dollar-based oil pricing. The report in the Independent newspaper was denied by top finance officials, giving the dollar a small, but temporary, lift in early European trading hours. Read more on possible oil-price changes. Also, the Australian dollar jumped after the nation's central bank became the first nation in the Group of 20 to hike interest rates. The Aussie changed hands at 88.70 U.S. cents, up from 87.94 cents in late North American trading Monday. It also rebounded against the Japanese currency after falling as low as 78.03 yen earlier in the session. The Australian unit was recently buying 79.01 yen, up from 78.56 yen. The euro traded at $1.4723 against the U.S. dollar, up from $1.4657 in North American trade Monday afternoon. The dollar index (DXY 76.35, -0.29, -0.38%) , a measure of the greenback against a trade-weighted basket of currencies, fell to 76.330 from 76.668. The dollar bought 89.01 yen, down from 89.49 yen. Asked about the oil-pricing story on the sidelines of the International Monetary Fund meeting in Istanbul, Saudi Arabia's central bank chief Muhammad al-Jasser said the report was "absolutely incorrect," Reuters reported. Russia's deputy finance minister Dmitry Pankin also denied the story, according to reports. Economists at BNP Paribas doubted Saudi Arabia would run the risk of straining relations with the United States over oil pricing, particularly amid fears of Iran's development of nuclear weapons. "Saudi Arabia holds the globe's biggest oil reserves, which need the protection of U.S. powers," they wrote. "Pricing oil in U.S. dollars is the price Saudi Arabia will pay for this protection. There are many reasons to be dollar bearish, but a potential re-pricing of commodities seems to be the least convincing." Despite the official denials, however, the article still served to reinforce underlying unease about the dollar's role as the world's primary reserve currency, strategists said. Although the Saudis might not have been in talks to reduce their dependence on the dollar, China's efforts this year to strike bilateral trade deals and take stakes in energy and commodities producers around the globe shows China is already taking steps to diversify away from its massive dollar reserve holdings, said Jane Foley, research director at Forex.com. "The crux of this story is, of course, the dollar's failing credentials as the world's reserve currency," Foley said. The dollar's fall from grace, however, will remain a slow process amid a lack of alternatives, she said. The Reserve Bank of Australia boosted its cash rate by a quarter of a percentage point to 3.25%, marking the first hike since March 2008. It follows an aggressive reduction of a total of 4.25 percentage points starting in September 2008. See full story on RBA rate hike. The RBA's move "was accompanied by an upbeat statement and strong growth forecast, signaling further likely hikes ahead," said currency strategists at RBC Capital Markets. "Now that the cycle of global loosening is broken, Norway will almost certainly be next at the end of this month and attention will turn to Canada and New Zealand." The British pound slumped in volatile trade, initially pushing back above $1.60 versus the U.S. dollar after mortgage lender Halifax said U.K. house prices rose 1.6% in September. An unexpected plunge in August manufacturing output, however, put an end to the bounce, sending the pound back below $1.60 versus the dollar and into negative territory. See full story. Sterling recently traded at $1.5886, down from $1.5942 in North American trade late Monday. The euro rose to 92.64 pence, up 0.8% on the day.

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