BLBG; Yen Rises as U.S. Drop in New-Home Sales Reduces Risk Demand
By Bo Nielsen and Ye Xie
Oct. 28 (Bloomberg) -- The yen gained versus all of its major counterparts and the dollar rose versus the euro on speculation an unexpected drop in U.S. new-home sales will discourage demand for higher-yielding assets.
Japan’s currency posted its biggest advance versus the New Zealand dollar among the 16 most-traded currencies as U.S. stocks fell. The krone pared its drop versus the U.S. dollar as Norway’s central bank became the first in Europe to lift interest rates since the credit crisis started to abate.
“Across the board, the numbers are cooling,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Everybody owns that risk-on trade, but the data is softer.”
The yen appreciated 0.9 percent to 134.67 per euro at 10:10 a.m. in New York, from 135.89 yesterday, after reaching 134.37, the strongest level since Oct. 15. Japan’s currency climbed 0.7 percent to 91.12 per dollar, from 91.80. The dollar gained 0.1 percent to $1.4784 per euro, from $1.4804, and earlier reached $1.4757, the strongest level since Oct. 12.
Japan’s currency climbed 1.9 percent to 82.55 versus the Australian dollar and the greenback appreciated 1.2 percent to 73.51 U.S. cents versus New Zealand’s currency on speculation investors will reduce carry trades, in which they borrow in the currency of a nation with low interest rates to purchase assets in another country where returns are higher.
Borrowing Costs
Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. make the yen and dollar favored targets for investors seeking to fund carry trades.
“We continue to target the dollar at $1.45 per euro in one month as risk sentiment is clearly showing signs of strain,” Singapore-based Gareth Berry, a currency analyst at UBS AG, wrote in a research note today.
The U.S. currency dropped 1 percent versus the euro in October in its fourth monthly decline, the longest losing streak since 2004. The yen fell 2.5 percent against the euro this month and 1.5 percent versus the dollar.
The dollar is an “over-owned” currency and likely to fall to an all-time low against major counterparts, Pacific Investment Management Co.’s Bill Gross told CNBC.
“The Chinese, the Asians, have owned too many dollars for too long,” said Gross, a founder and co-chief investment officer of the world’s biggest manager of bond funds. “The dollar becomes more and more owned and less and less desirable, so ultimately the direction is down. I don’t sense stability in the dollar.”
Gross on China
The U.S. currency stands a chance of moving “substantially lower” unless the Chinese decide the world has “renormalized” enough that they can start seeking higher-yielding assets, Gross said. Global investors have much less tolerance for risk as the world recovers from the financial crisis, Gross said.
The Dollar Index, which the ICE uses to gauge the greenback against currencies including the euro, yen and pound, was little changed at 76.169. It reached an all-time low of 70.698 in March 2008.
The krone declined 0.4 percent to 5.6730 versus the dollar after earlier weakening as much as 1.3 percent. Oslo-based Norges Bank raised its record-low overnight deposit rate by a quarter-percentage point to 1.5 percent.
India’s central bank increased yesterday the statutory liquidity ratio for banks to 25 percent from 24 percent and lifted the inflation forecast. U.S. Treasury Secretary Timothy Geithner said yesterday at a New York conference that he expects the government will receive repayment “relatively quickly” from most of the big banks helped by the $700 billion financial rescue program.
U.S. Housing
New-home sales unexpectedly fell last month to an annual rate of 402,000, from a revised 417,000 pace in August, the Commerce Department reported today in Washington. The median forecast of 75 economists in a Bloomberg survey was for an increase to 440,000 from a previously reported 429,000.
Australia’s dollar dropped 1.3 percent to 90.44 U.S. cents as a report showed inflation slowed, easing speculation the central bank will speed up rate increases.
The consumer price index rose in the third quarter by an annual 1.3 percent, the smallest gain since the second quarter of 1999, after advancing 1.5 percent in the previous three months, the Bureau of Statistics said in Sydney today.
The Reserve Bank of Australia raised the benchmark cash rate by a quarter-point to 3.25 percent on Oct. 6. New Zealand’s central bank will raise its 2.5 percent target in the third quarter of next year, according to the median forecast of eight economists in a Bloomberg survey.
