BLBG: Dollar Near 2-Week Low as Economic Optimism Spurs Yield Demand
By Yoshiaki Nohara and Ron Harui
Nov. 12 (Bloomberg) -- The dollar traded near a two-week low against the euro on optimism the global economic recovery is gathering momentum, sapping demand for the greenback as a refuge.
Australia’s dollar surged to a 15-month high after jobs unexpectedly gained in October, bolstering the case for the nation’s central bank to raise interest rates. The euro climbed before a report tomorrow forecast to show Europe’s economy expanded last quarter. The dollar and the yen pared losses against the euro as stocks reversed gains.
“Sentiment is spreading that the rebound of economies around the world is picking up,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The trend is for taking on risk, which means sell the dollar and buy growth-sensitive currencies such as the Australian dollar.”
The U.S. currency traded at $1.4996 per euro at 2:53 p.m. in Tokyo from $1.4987 in New York yesterday, when it touched $1.5048, the lowest level since Oct. 26. The dollar slipped to 89.83 yen from 89.87 yen.
Japan’s currency was at 134.71 per euro from 134.69. It dropped to 83.91 versus Australia’s dollar from 83.59. Australia’s currency surged 0.5 percent to 93.40 U.S. cents. It earlier touched 93.70, the highest level since August 2008.
The dollar and yen pared losses against the euro as Asian stocks fell and on speculation investors will trim bets before the end of this year that the U.S. currency will weaken further.
Asian Stocks
“Equities in the region, particularly in Japan, are turning negative,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is probably causing some risk aversion, so there’s a bit of yen buying.”
The Nikkei 225 Stock Average fell 0.7 percent after gaining as much as 0.7 percent. The MSCI Asia-Pacific excluding Japan Index dropped 0.1 percent after advancing as much as 0.6 percent.
Futures traders pared bets the dollar will decline against seven currencies including the euro, according to data from the Washington-based Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a fall in the U.S. currency compared with those on a rise -- so-called net shorts -- was 175,462 on Nov. 3, compared with net shorts of 191,950 a week earlier.
The euro-yen had a correlation of 0.79 with MSCI’s Asia ex- Japan index in the past year, according to data compiled by Bloomberg. A reading of 1 would mean the two moved in lockstep.
Australia Jobs
Benchmark rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 3.5 percent in Australia and 2.5 percent in New Zealand, attracting investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits.
The Australian dollar gained for a second day versus the yen after the statistics bureau said in Sydney today the number of Australians employed rose 24,500 in October from the previous month. The median estimate of 20 economists surveyed by Bloomberg was for a decline of 10,000. The jobless rate rose to 5.8 percent from 5.7 percent.
Australia’s economy is expanding with “less spare capacity than earlier thought likely,” according to the central bank, as Chinese-led demand for resources spurs companies such as Chevron Corp. to hire workers.
The odds the Reserve Bank of Australia will increase its 3.5 percent benchmark interest rate by a quarter-percentage point at next month’s meeting were 88 percent today, up from 76 percent yesterday, a Credit Suisse Group index based on interest-rate swaps showed.
Euro-Zone Economy
“The solid report will once again fuel expectations of more aggressive rate hikes by the RBA and likely support expectations of a third-consecutive hike at the December RBA meeting,” Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong, wrote in a note today about the jobs data.
Gross domestic product in the 16-nation euro region expanded 0.5 percent in the third quarter from the second quarter, when it fell 0.2 percent, according to economists surveyed by Bloomberg News. The European Union’s statistics office in Luxembourg will release the report tomorrow.
“Good economic data keep driving up demand for the euro,” said Akira Hoshino, chief manager of the foreign-exchange trading department in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender by market value. “The GDP data will add to that trend.”
The European Central Bank has kept its benchmark interest rate at 1 percent since May and is lending banks unlimited cash for periods of up to a year to haul Europe out of the recession. President Jean-Claude Trichet signaled on Nov. 5 that the ECB’s December offer of 12-month loans to banks will be the last.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
