BLBG: Yen Near Six-Week High as Stock Losses Reduce Demand for Risk
By Yoshiaki Nohara
Nov. 20 (Bloomberg) -- The yen traded near a six-week high against the dollar as Asian stocks extended the biggest drop in global equities this month, spurring demand for the Japanese currency as a refuge.
The greenback headed for a weekly loss versus the euro on speculation the Federal Reserve will keep interest rates near zero to spur economic growth. The Australian and New Zealand dollars were poised for their first weekly loss against the U.S. currency this month on prospects a sluggish global recovery will deter policy makers from raising interest rates.
“Given falls we’ve seen in equity prices, I think the risk is that the moves we saw yesterday will probably continue,” said Robert Rennie, head of currency research in Sydney at Westpac Banking Corp. “Once you get to Thanksgiving, generally traders tend to get risk off the table.”
The yen traded at 88.91 per dollar as of 6:01 a.m. in London from 88.97 in New York yesterday, when it rose to 88.64, the highest level since Oct. 9. The currency was at 132.66 per euro from 132.79, and was set for a 0.7 percent gain this week. The dollar bought $1.4921 per euro from $1.4925, after earlier rising as high as $1.4882. It was poised for a 0.1 percent decline this week.
The Nikkei 225 Stock Average fell 0.6 percent, completing a fourth-straight weekly loss, the longest losing streak since October 2008. The MSCI Asia Pacific Index of regional shares dropped 0.4 percent. Stock losses discourage carry trades, in which investors buy higher-yielding assets with funds borrowed in nations with relatively low interest rates.
Stock Losses
“Falling stocks are worrisome,” said Takashi Miyachi, vice president of foreign exchange sales at Mizuho Corporate Bank Ltd. in Tokyo. “The risk-taking trend that’s boosted dollar selling is taking a pause. U.S. investors are probably repatriating dollars with the holiday season starting.”
The dollar pared earlier gains on speculation unemployment at a 26-year high will encourage the Fed to maintain low borrowing costs for an extended period.
Dallas Fed President Richard Fisher said yesterday in Washington it will be “some time” before the unemployment rate falls below 10 percent. Fisher said the 3.5 percent annual rate of growth reported for the third quarter may be revised lower, and that the economy is still “quite flaccid.”
“The mainstream trend is intact: dollar weakening,” said Yoshihiro Nomura, Tokyo-based foreign exchange team manager at Trust & Custody Services Bank Ltd. “There are no new factors that would change the trend in the near future. I expect the Fed will keep rates on hold through next year.”
Bank of Japan
Japan’s currency was little changed after the Bank of Japan left its benchmark interest rate at 0.1 percent at its policy meeting today. The central bank also raised its monthly assessment, saying the Japanese economy is picking up.
Futures traders reduced bets the greenback will fall versus seven currencies including the Australian dollar, according to the Washington-based Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a drop in the U.S. currency compared with those on a rise -- so-called net shorts -- was 164,360 on Nov. 10, compared with net shorts of 175,462 a week earlier.
“In the short term, increased risk aversion will play positively for the dollar against most currencies, especially against high-beta currencies such as the Australian and New Zealand dollars and the pound,” Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, wrote in a research note today.
Borrowing costs near zero in the U.S. and 0.1 percent in Japan make their currencies popular for funding such transactions. The Reserve Bank of Australia this month became the first central bank to increase borrowing costs twice this year, raising rates to 3.5 percent.
Australia’s dollar traded at 91.98 U.S. cents from 91.86 cents, heading for a 1.4 percent weekly loss. The New Zealand dollar was at 73.10 U.S. cents from 73.11 cents, extending its decline this week to 1.7 percent.
To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.
