BLBG: Dollar Weakens as Risk Aversion Eases After U.A.E. Backs Dubai
By Lukanyo Mnyanda and Yasuhiko Seki
Nov. 30 (Bloomberg) -- The dollar fell against higher- yielding currencies after the United Arab Emirates’ central bank said it “stands behind” the country’s lenders, easing concern that state-owned Dubai World will default on its debt.
The U.S. currency also snapped two days of gains against the euro after the Abu Dhabi-based central bank said lenders will be able to borrow using a special facility tied to their current accounts. The Australian and New Zealand dollars rallied as demand for high-yielding assets increased. The euro rose after a report showed European consumer prices increased for the first time in seven months.
“The assurances, though not as strong as some people would have liked, imply risk appetite and the risk trade have come back,” said Stuart Bennett, a London-based analyst at Calyon, the investment-banking arm of Credit Agricole SA. “The pressure on the dollar was already there before the announcement. If this is a Dubai blip, people are going to be worried that they’ll miss the boat.”
The dollar weakened to $1.5035 per euro as of 6:41 a.m. in New York, from $1.4988 last week. Australia’s dollar jumped to 91.25 U.S. cents, from 90.63 cents, and strengthened to 78.79 yen, from 78.43. New Zealand’s dollar advanced to 71.47 cents, from 71.11, and gained to 61.73 yen, from 61.52 yen.
The yen was at 129.88 per euro, from 129.67 at the end of last week. It traded at 86.37 per dollar, from 86.53. The Japanese currency rose to a 14-year high of 84.83 on Nov. 27.
Stocks Advance
The MSCI World Index of stocks advanced 0.4 percent after the U.A.E central bank said yesterday lenders will be able to borrow money from the regulator for half a percentage point above the three-month local benchmark interest rate. U.S. stock- index futures were little changed.
Dubai World, which is struggling with $59 billion of debt and other liabilities, said Nov. 25 it would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The announcement led to a slump in global financial markets and raised the prospect of new loan losses for U.A.E. and foreign banks.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six major U.S. trading partners including the euro, yen and the pound, fell 0.4 percent to 74.713. It rose 1 percent between Nov. 25 and Nov. 27.
“Dubai debt concerns definitely dominated trading last week,” John Hydeskov, a currency analyst in Copenhagen at Danske Bank A/S, said in a Bloomberg Television interview. “I’m a little less concerned but there are some issues out there that need to be resolved.”
Communication Skills
The yen strengthened versus the dollar after Japanese Finance Minister Hirohisa Fujii was quoted by the Mainichi newspaper as saying the government won’t act to curb its gains.
The government should work closely with the Bank of Japan to deal with the appreciating yen, Mainichi cited Fujii as saying. He made the remarks yesterday to reporters after discussing the yen-dollar exchange rate with Prime Minister Yukio Hatoyama, the newspaper said.
Today, Fujii denied saying he has ruled out intervening in foreign-exchange markets. “I never said that,” he told reporters in Tokyo today.
“The communication skills of the Ministry of Finance do leave a lot to be desired,” analysts including Antje Praefcke at Commerzbank AG in Frankfurt wrote in a client note today. “It seems unlikely though that the Japanese will do nothing if the strength of the yen continues.”
Bank of Japan Governor Masaaki Shirakawa said today it’s up to the government to decide whether to act on currency markets.
‘Rapid Appreciation’
“The bank pays due attention to the effects of the recent rapid appreciation of the yen on business sentiment of the firms that are on the road to recovery, as well as to the effects of international financial developments,” Shirakawa said at a business meeting in Nagoya, central Japan. “It would be important, above all, for a central bank to examine the economy without prejudgment.”
Japan hasn’t sold its currency since March 16, 2004, when it was at about 109 per dollar. The BOJ sold 14.8 trillion yen ($172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998 as the rate fell as low as 147.66.
Contracts granting the right to buy the yen versus the dollar rose last week to a 2.1 percentage-point premium relative to options for selling Japan’s currency, according to Bloomberg data. The odds of the yen strengthening past 84.83 per dollar to 84.5 by the end of March rose to 80 percent, options data compiled by Bloomberg show.
Swiss Franc
The Swiss franc gained as much as 0.1 percent against the euro to trade at 1.5052 amid investor optimism that Switzerland’s economy will outperform its peers as the global recovery takes shape. It was at 1.5073, from 1.5070 last week.
The number of wagers on a gain in the franc against the dollar exceeded bets on a decline by 10 times this month, data from the Commodity Futures Trading Commission showed. That’s the widest gap since the fourth-quarter of 2004, when the currency was rallying 9.3 percent versus the greenback. Underscoring their optimism, traders drove the franc to parity with the dollar last week for the first time since April 2008.
The euro climbed most against the British pound and South African rand after the European Union statistics office in Luxembourg said consumer prices in the 16-nation region rose 0.6 percent this month from a year earlier, after falling 0.1 percent in October. Economists had projected a gain of 0.4 percent, according to a Bloomberg News survey.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
