BLBG : Dollar Falls After Australia Unexpectedly Raises Interest Rates
The dollar fell to its weakest level in almost two weeks against the euro after Australia’s central bank unexpectedly raised interest rates amid evidence the economic recovery is gathering pace.
The U.S. currency also dropped versus the Swedish krona and Norwegian krone as stocks rose, undermining demand for currencies considered by traders as a refuge. It slid most against Australia’s dollar after the nation’s central bank lifted its benchmark rate a quarter point to 3.25 percent and signaled further increases. The yen rose after Japanese Finance Minister Hirohisa Fujii said nations shouldn’t pursue policies that weaken their currencies.
“ The Australian rate hike raised the question of who’s next,” said Adam Cole, head of global currency strategy at RBC Capital Markets in London. “It put the spotlight on the Federal Reserve, which will probably be among the last. That made it a dollar-negative event.”
The dollar weakened to $1.4728 per euro at 6:15 a.m. in New York, from $1.4648 yesterday. The U.S. currency also fell to 89.08 yen from 89.53 yen. The euro was little changed at 131.21 yen.
The Australian dollar gained versus all of the 16 most- traded currencies, adding 1.1 percent to 88.81 U.S. cents, after the country’s central bank became the first among the Group of 20 nations to raise interest rates since the financial crisis began. One of 20 economists surveyed by Bloomberg News forecast today’s decision. The rest predicted no change.
‘Stabilizing Effect’
“This should have a stabilizing effect on risk appetite, providing another tangible sign that the global economy may be on the road to recovery,” Gareth Berry, an analyst at UBS AG in London, wrote in a research note yesterday. “It could spell more bad news for the dollar if its relationship to risk remains negative.”
The Fed will start raising its benchmark rate in the third quarter of 2010, as will the European Central Bank, according to analysts’ forecasts compiled by Bloomberg. The central banks of U.K. and Norway will start this year, the data show.
Stocks rose, with the Dow Jones Stoxx 600 Index of European shares adding 1.4 percent. Standard & Poor’s 500 Index futures advanced 1.5 percent.
The euro climbed before a report likely to add to evidence that Germany, the 16-nation currency region’s biggest economy, is shaking off the worst effects of the recession. German factory orders advanced 1.1 percent in August, following a 3.5 increase in July, according to the median estimate of economists in a Bloomberg News survey. The Economy Ministry in Berlin is scheduled to publish the data tomorrow.
Denied Report
The dollar fell earlier after the London-based Independent newspaper said that Persian Gulf states and countries including Japan, Russia and China discussed dropping the dollar for oil trades, citing unnamed sources. It pared declines as Saudi Arabia’s Central Bank Governor Muhammad al-Jasser and Kuwaiti Oil Minister Sheikh Ahmed Al-Abdullah Al-Sabah denied any talks were held.
The story “is a good example of poor dollar sentiment being vulnerable to speculative selling,” Derek Halpenny, European head of global currency research in London at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in a report today. “Oil- producing nations hold trillions of dollars in reserves and sovereign wealth funds. Any shift will be subtle and never formalized to the extent to disrupt markedly the value of the dollar.”
Undesirable Policy
The yen gained against the dollar after Japanese Finance Minister Hirohisa Fujii said he told officials from the Group of Seven nations meeting in Istanbul last weekend that governments shouldn’t pursue policies that seek to devalue their currencies.
“I made the point that it’s undesirable for individual nations to take a weak-currency policy,” Fujii said at a news conference in Tokyo today. “Currency devaluation policies back in the 1930s had an adverse impact on the global economy and politics.”
Fujii said after taking office last month he didn’t support a weak currency. Last weekend in Istanbul, he said that Japan would “take action” if currencies show excessive moves. The yen has gained 14 percent against the dollar in the past year, hurting earnings for export-dependent Japanese companies.
“The market is interpreting his latest comments as signs the government will let the yen keep rising,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The yen is benefiting from that.”
Sony Corp. Vice Chairman Ryoji Chubachi said the rising yen may undermine the company’s ability to compete against overseas electronics makers as it faces falling television prices and a weak U.S. economy.
“We don’t have a moment to breathe,” Chubachi said in an interview today at the CEATEC trade fair in Chiba, near Tokyo. “It is a tough environment.”
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
