Dollar Weakens on Global Optimism; Aussie Gains on rba's `Upswing' Remarks
Nov. 25 (Bloomberg) -- The dollar fell against higher-yielding currencies and slipped to a two-week low against theeuro as renewed signs the global economy is recoveringencouraged investors to buy riskier assets.
The U.S. currency weakened beyond $1.50 per euro after aJapanese report showed the nation’s exports dropped at theslowest pace in a year as government spending worldwide boosteddemand. Australia’s dollar jumped as Reserve Bank of AustraliaDeputy Governor Ric Battellino said the economy has entered a“new upswing,” fueling speculation the central bank will raiserates for a third month in December.
“Japan’s trade data clearly indicates that overseas demandis recovering,” said Tomohiro Nishida, a foreign-currencydealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit ofJapan’s seventh-largest banking group. “The bullish remarksfrom the RBA also added to the revival of risk demand.”
The dollar depreciated to $1.5018 per euro as of 8:10 a.m.in London, from $1.4968 in New York yesterday, after dropping to$1.5024, the weakest since Nov. 11. The greenback slid to 92.78cents per Australian dollar, from 91.92 cents, and declined to73.21 cents against the New Zealand dollar, from 72.58 cents.The U.S. currency was at 88.28 yen, from 88.50 yen, aftertouching 88.20 yen, the lowest since Oct. 8.
Japanese shipments abroad dropped 23.2 percent in Octoberfrom a year earlier, compared with a 30.6 percent decline inSeptember, the Finance Ministry said today in Tokyo. The medianestimate of economists surveyed by Bloomberg was for a 26.8percent slide. From a month earlier, exports rose 2.5 percent,the fastest pace since April.
Chinese Demand
Renewed demand from China and other emerging markets isspurring sales for Japanese manufacturers. Exports helpedJapan’s economy expand at the fastest pace in more than twoyears in the third quarter, even as prices of goods declined andthe yen gained 7.4 percent against the dollar.
“China’s demand is considerably strong, actually strongerthan we thought,” said Junko Nishioka, chief economist at RBSSecurities Japan Ltd. in Tokyo. “That means the export-ledrecovery story will go on in the fourth quarter, despite the yenappreciation.”
Adding to signs the global economic recovery is gatheringmomentum, gross domestic product in the U.K. fell 0.3 percentfrom the second quarter, less than the 0.4 percent dropinitially reported on Oct. 23, according to a Bloomberg surveyof economists. The Office for National Statistics will releasethe estimate today in London.
Australian Dollar
The Australian dollar was the biggest gainer against thegreenback after the RBA’s Battellino told a conference inMelbourne that “it is reasonable to assume that we will seethis growth extended for a few more years yet.”
“The idea that the central bank can say the economy hasentered a new upswing which could last for a few more years ispretty optimistic,” said Robert Rennie, head of currencyresearch at Westpac Banking Corp. in Sydney. “There’s a fairlystrong and consistent message coming from the RBA. We expectthem to raise 25 basis points next week.”
There’s a 76 percent chance the RBA will increase borrowingcosts when it next meets on Dec. 1, according to a Credit SuisseGroup AG index based on swaps. This month, Australia became theonly nation to boost borrowing costs twice this year.
Futures contracts on the Chicago Board of Trade showedyesterday a 30 percent chance the Federal Reserve will raiserates by June, down from 67 percent odds a month ago.
Benchmark Rates
Benchmark rates are 3.5 percent in Australia and 2.5percent in New Zealand, compared with 0.1 percent in Japan andas low as zero in the U.S., attracting investors to the SouthPacific nations’ higher-yielding assets. The risk in such tradesis that currency market moves will erase profits.
The dollar declined to a seven-week low against the yenafter minutes of the Fed’s latest meeting released yesterdayshowed officials refrained from voicing concern over thegreenback’s recent decline.
“A lack of clear-cut warning from the Fed may make iteasier for short-term players to test the downside of the dollaragainst the yen,” said Shinichi Hayashi, a Tokyo-based dealerat Shinkin Central Bank, the central institution for Japan’sfinancial cooperatives.
U.S. policy makers said in the minutes of the Nov. 3-4meeting the depreciation in the dollar was “orderly” and anydeclines that push up inflation “would bear close watching.”
Dollar Weakness
Japanese Finance Minister Hirohisa Fujii said the yen isgaining because of weakness in the dollar.
“It’s all because of the U.S. dollar,” Fujii toldreporters today in Tokyo, without elaborating. He has said lowinterest rates in the U.S. are behind the currency’s drop.
The yen has advanced almost 7 percent against the dollar inthe past three months. Some of the gains were spurred by Fujii’sremarks that he opposed “easy intervention” into markets toweaken the yen. He has since toned down his comments, sayingJapan will act if the currency moves in an “abnormal ordisorderly” way.
Japanese authorities haven’t stepped into the currencymarket since the first three months of 2004.
Vietnam’s central bank devalued its currency and raisedinterest rates to rein in accelerating inflation and a wideningtrade deficit. The State Bank of Vietnam set a dong referencerate for tomorrow that is 5.2 percent lower, at 17,961 perdollar, compared with 17,034 today, it said in a statement.Policy makers narrowed the dong’s daily trading band to 3percent, from 5 percent, effective tomorrow, and increased thebenchmark rate for the first time since January, to 8 percent.
To contact the reporters on this story:Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.
Last Updated: November 25, 2009 03:12 ESTSource: Bloomberg
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