BLBG: Dollar Falls as Signs of Economic Recovery Renew Risk Demand
By Ben Levisohn and Bo Nielsen
Jan. 4 (Bloomberg) -- The dollar declined against all of its major counterparts as evidence of global economic recovery revived demand for riskier assets at the greenback’s expense.
The Australian and New Zealand dollars rose against the U.S. currency as reports showed U.S. output grew more than economists estimated and China’s manufacturing expanded at the fastest pace in more than five years. Sterling touched a two- week high against the dollar on increases in the U.K.’s manufacturing and mortgage approvals.
“With return of volume and liquidity in the first day of the year, we’ve seen the resumption of the negative correlation of equity markets and U.S. dollar,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank. “Investors feel very comfortable going long risky securities, and when you do that you’re encouraging dollar weakness.” A long is a bet an asset will appreciate.
The dollar declined 0.8 percent to $1.4432 per euro at 10:12 a.m. in New York, from $1.4324 on Jan. 1. The U.S. currency decreased 0.5 percent 92.56 yen, from 93.03. The euro increased 0.2 percent to 133.60 yen, from 133.29
Canada’s dollar approached a two-month high against the greenback as crude oil rose above $80 a barrel. The Canadian currency appreciated 1.4 percent to C$1.0380 per U.S. dollar. It touched C$1.0367 on Dec. 29, the strongest level since Oct. 20.
Aussie Gains
The Australian dollar increased 1.3 percent to 90.99 U.S. cents and the New Zealand dollar gained 1.2 percent to 73.16 U.S. cents on speculation investors will resume carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. The fed funds target of zero to 0.25 percent makes the U.S. currency popular for funding such transactions.
China’s manufacturing expanded in December, supporting estimates that growth has accelerated to more than 10 percent in the world’s third-biggest economy. A purchasing managers’ index compiled by HSBC Holdings Plc and Markit Economics rose to a seasonally adjusted 56.1. The measure is based on a survey of more than 400 manufacturing companies.
The U.S. Institute for Supply Management reported today that its factory index increased to 55.9 in December from 53.6 in the previous month. The median estimate of 65 economists in a Bloomberg survey was for an advance to 54.3.
The pound traded at $1.6172 after touching $1.6241, the highest level since Dec. 18. Sterling declined 0.5 percent to 89.15 U.S. cents.
U.K. Factories
A U.K. manufacturing index increased to 54.1 last month from 51.8 in November, the Chartered Institute of Purchasing and Supply and Markit Economics said today. It was the highest reading in more than two years. Mortgage lenders granted 60,518 loans to buy homes in November, the highest since March 2008, Bank of England data showed.
The dollar posted in December its first monthly gain since June versus the currencies of major U.S. trading partners as the Federal Reserve moved closer to withdrawing stimulus measures that helped cause the greenback to fall 4.2 percent for the year.
The Dollar Index, which the ICE futures exchange uses to track the greenback against currencies including the euro, yen and pound, increased 4 percent in December to 77.860. It was the first monthly advance in six months and the biggest gain since January 2009. The gauge dropped 0.7 percent today.
Outlook for Dollar
“Given that the market has already moved to discount aggressive Fed tightening ahead, we believe that further dollar gains in the coming months will prove more difficult,” Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London, wrote in a note today.
The dollar may rise this year as U.S. investors reduce the share of foreign assets in their portfolios, said UBS AG, citing investment data.
U.S. mutual funds cut foreign holdings to 25.8 percent of the total in November from around 26 percent in October, a level that matched the record set in May 2008, the bank wrote in a note, citing the Washington-based Investment Company Institute.
“Dollar bears beware,” Mansoor Mohi-uddin, the global head of currency strategy at UBS in Singapore, wrote in the e- mailed note. “November’s data shows that U.S. investors may already be less willing to increase their foreign exposures.”
To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
