BLBG: Yen Rises as U.S. Drop in New-Home Sales Saps Demand for Risk
Oct. 28 (Bloomberg) -- The yen gained versus all of its major counterparts on speculation a report showing an unexpected drop in U.S. new-home sales in September discouraged demand for higher-yielding assets.
Japan’s currency posted its biggest advance versus the New Zealand dollar among the 16 most-traded currencies on evidence the U.S. housing recovery may lose momentum after a government tax credit expires. The krone pared its drop versus the greenback as Norway’s central bank became the first in Europe to lift interest rates since the credit crisis started to abate.
“The market acted on the assumption that the government measures will be around indefinitely,” said Sacha Tihanyi, a currency strategist at Scotia Capital Inc. in Toronto. “When these things are removed, will the economy recover on a sustained basis? Risky assets are quite vulnerable.”
The yen appreciated 0.9 percent to 134.65 per euro at 10:45 a.m. in New York, from 135.89 yesterday, after reaching 134.37, the strongest level since Oct. 15. Japan’s currency climbed 0.8 percent to 91.06 per dollar, from 91.80. The dollar traded at $1.4790 per euro, compared with $1.4804, and earlier reached $1.4757, the strongest level since Oct. 12.
Japan’s currency climbed 2.2 percent to 82.33 versus the Australian dollar and the greenback appreciated 1.4 percent to 73.37 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
Target 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 1.1 percent versus the euro in October in its fourth monthly decline, the longest losing streak since 2004. The yen fell 2.6 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 than they did before 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, compared with 76.135 yesterday. It reached an all-time low of 70.698 in March 2008.
The krone declined 0.2 percent to 5.6625 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.
Geithner’s View
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.
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 90.43 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-percentage 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.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
