BLBG: Dollar Trades Near 15-Month Low on View Rates to Stay Near Zero
By Yoshiaki Nohara and Ron Harui
Nov. 17 (Bloomberg) -- The dollar was near a 15-month low versus the currencies of major U.S. trading partners on speculation Federal Reserve officials speaking today will reiterate their pledge to keep interest rates near zero.
The yen strengthened against 10 of its 16 most-traded counterparts as a rally in stocks lost momentum, damping demand for higher-yielding assets. Australia’s currency weakened from near the strongest level in 15 months after minutes from the central bank’s most recent meeting cast doubt on a third- straight increase in key lending rates.
“The dollar will continue to be used as a funding currency amid rising risk appetite,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The mainstream trend remains intact. The Fed will keep low rates for a while.”
The dollar was at $1.4970 per euro as of 2:06 p.m. in Tokyo from $1.4970 yesterday in New York. The yen fetched 133.34 per euro from 133.33. The greenback traded at 89.08 yen from 89.05 yen, after falling to 88.76 yesterday, the lowest since Oct. 9.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency’s value against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, traded at 74.912 from 74.894. The gauge slumped 0.6 percent yesterday, touching 74.679, the weakest since August 2008.
Fed Chairman Ben S. Bernanke said yesterday in New York that the central bank “will help ensure that the dollar is strong and a source of global financial stability.”
Economic “headwinds” of weak lending and labor markets will probably restrain the pace of the U.S. economic recovery, warranting a continuation of low borrowing costs, he said.
‘Selling Pressure’
“The dollar will remain under selling pressure after Bernanke stated that the market has got it wrong when it comes to the timing of the implementation of the Fed’s exit strategy, implicitly suggesting that the Fed still sees substantial risks to the economic rebound,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a research note yesterday.
Richmond Fed President Jeffrey Lacker will speak today on the economic outlook to the annual retreat meeting of the state’s House Appropriations Committee in Richmond, Virginia. Cleveland Fed President Sandra Pianalto is set to speak at the 11th Annual Ohio Housing Conference today in Columbus, Ohio.
‘Psychological’ Support
Losses in the dollar were tempered amid speculation investors trimmed bets against the currency after it failed to weaken beyond “psychological” support at $1.50 per euro, said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co.
“It’s probably some position-adjustment buying of dollars,” Kubo said. “The markets look like they’ll consolidate for now.” Support refers to a level where buy orders may be clustered.
Futures traders reduced bets the dollar will fall versus seven major currencies, 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 drop in the U.S. currency compared with those on an advance -- so-called net shorts -- was 164,360 on Nov. 10, compared with net shorts of 175,462 a week earlier.
The yen advanced as the Nikkei 225 Stock Average reversed earlier gains to fall 0.5 percent, paring demand for higher- yielding assets. The MSCI Asia Pacific Index of regional shares dropped 0.2 percent after earlier rising 0.5 percent.
‘Open Question’
“Japan’s stocks are trailing other equity markets, reflecting investors’ reservations about the nation’s economy and deflation,” said Toshiya Yamauchi, manager of the foreign- exchange margin-trading department at Ueda Harlow Ltd. in Tokyo. “As the global economic outlook remains uncertain, investors are unwinding some positions on higher-yielding assets funded in the yen and the dollar.”
Australia’s central bank said the pace of interest-rate increases is an “open question” as it balances the risk of keeping borrowing costs too low against an economy that may cool as government stimulus abates.
“If economic conditions evolved as expected, further gradual adjustment in the cash rate would most likely be appropriate over time,” officials said in minutes released today in Sydney of their Nov. 3 meeting, at which they raised the overnight cash rate target to 3.5 percent.
Australia’s dollar fell to 93.46 U.S. cents from 93.69 cents yesterday, when it reached 94.06 cents, the strongest since Aug. 1, 2008.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
