BLBG: Yen Falls on Prospects German Confidence Rose to 3-Year High
The yen fell to a two-week low against the euro before a report tomorrow forecast to show German investor confidence climbed to the highest level in 3 1/2 years, boosting demand for higher-yielding assets.
The dollar rose for a second day versus the euro as traders judged the U.S. currency’s drop to a two-week low on Oct. 8 to be overdone amid speculation the Federal Reserve will withdraw stimulus measures. Australia’s dollar traded near a 14-month high versus the greenback as investors increased bets the nation’s central bank will raise interest rates.
“Japanese investors are still looking to put some funds abroad,” said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. “This is likely to be negative for the yen.”
The yen declined to 132.56 per euro as of 1:30 p.m. in Tokyo from 132.25 yen in New York on Oct. 9 after earlier touching 132.57 yen, the lowest level since Sept. 25. It fell to 90.15 per dollar from 89.78. Japan’s currency dropped to 81.33 versus the Australian dollar from 81.12, after slipping to 81.42, the weakest since Aug. 10.
The dollar advanced to $1.4706 per euro from $1.4732 in New York on Oct. 9. It declined to $1.4818 on Oct. 8, the lowest since Sept. 23. The U.S. currency fetched C$1.0436 after earlier falling to C$1.0407, the weakest since Sept. 29, 2008. Australia’s dollar bought 90.22 U.S. cents from 90.37 cents. It reached 90.90 cents on Oct. 8, the most since August 2008.
Foreign-exchange movements may be more exaggerated than usual in Asia as national holidays in the U.S., Canada and Japan reduce trading volumes, Yoshida said.
Germany’s ZEW
Germany’s ZEW Center for European Economic Research will say its index of investor and analyst expectations, which aims to predict developments six months ahead, rose to 58.8 in October, the highest since April 2006, from 57.7 in September, according to a Bloomberg News survey of economists.
The 16-nation euro region’s economy “is showing signs of stabilization,” European Central Bank President Jean-Claude Trichet said in a speech in Venice, Italy, on Oct. 9. “In the period ahead, we see a very gradual recovery.”
Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3.25 percent in Australia and 1 percent in the countries using the euro.
The dollar strengthened as a Commodity Futures Trading Commission report showed futures traders increased their bets to the most in more than 1 1/2 years that the euro will gain versus the greenback.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 51,045 on Oct. 6, the most since January 2008, compared with net longs of 39,766 a week earlier. A long position is a bet an asset will rise.
‘Sold a Lot’
“There’s some covering of dollar-short positions as the currency has been sold a lot recently,” said Lee Wai Tuck, a foreign-exchange strategist at Forecast Pte in Singapore. “There are also lingering prospects the Fed may begin scaling back its super-loose monetary policy, which are supportive for the greenback.”
Futures positions, when they reach an extreme, are viewed as a contrarian indicator because traders often rush to reduce positions when momentum in a currency shifts. A short position is a bet an asset will decline.
Bernanke Comments
Fed Chairman Ben S. Bernanke said last week the central bank is prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently.”
“The most important thing is what the U.S. rates market does with Bernanke’s comments last week,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “The potential for 50 basis points in November should underpin the Aussie on any dips.”
Traders are betting the Reserve Bank of Australia will raise borrowing costs by at least 25 basis points when it meets Nov. 3, with at least a 20 percent chance of a bigger increase, according to Bloomberg calculations based on bank bill futures traded on the Sydney Futures Exchange.
The U.S. currency earlier fell to a one-year low versus its Canadian counterpart before U.S. reports this week that may show retail sales fell in September while factory production cooled, adding to signs the U.S. may trail other countries in emerging from recession.
U.S. purchases dropped 2.1 percent in September after rising 2.7 percent in August, according to a Bloomberg News survey of economists before the Commerce Department releases the report on Oct. 14. Industrial production expanded 0.1 percent in September after increasing 0.8 percent in August, a separate Bloomberg survey showed before the Fed’s report on Oct. 16.
“We’ve got some risk for the downside, with things like retail sales,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We still got rates very much on hold deep into next year in the U.S. and we’re inclined to believe that the dollar weakness is intact, particularly against the euro.”
