BLBG: Dollar, Yen Advance as Stock Losses Boost Demand for Safety
The dollar and the yen rose against the euro as stocks fell on concern the global economic slump is deepening, boosting demand for the currencies as a shelter from the financial turmoil.
The yen strengthened against all 16 of the most actively traded currencies as the MSCI World Index of shares slid for a third day. Alcoa Inc. kicked off the earnings season by reporting a second straight quarterly loss. The U.K. economy shrank 1.5 percent in the first quarter and German exports dropped for a fifth month in February, separate reports showed today, indicating Europe fell deeper into the recession.
“Safe-haven currencies, particularly the dollar, are outperforming because of what’s going to be, or what has been, a difficult risk environment,” said Phyllis Papadavid, a currency strategist in London at Societe Generale SA. “Equities are having a rough patch again, and we’re recommending that investors exit short-dollar positions ahead of the earnings season, which we believe will be a reality check for stocks.”
The yen strengthened 0.9 percent to 132.37 per euro as of 7:02 a.m. in New York, from 133.29 yesterday in New York. The dollar rose 0.5 percent to $1.3217 per euro, from $1.3272. It touched $1.3148, the strongest since March 30. The yen advanced to 99.76 per dollar, from 100.42.
The Australian and New Zealand dollars declined as a gauge of shipping costs fell for a 20th day, the longest stretch of declines in five months, signaling weaker demand for the commodities the two nations export.
Stocks Drop
The Aussie, as the Australian dollar is known, dropped 0.3 percent to 70.89 U.S. cents and New Zealand’s dollar fell 0.6 percent to 57.23. The Baltic Dry Index, a measure of raw- material shipping cost, extended its decline to the longest since November.
The MSCI World Index slid 0.9 percent and futures on the Standard & Poor’s 500 Index fell 1.1 percent. The Nikkei 225 Stock Average dropped 2.7 percent. Profits at companies in the S&P 500 may have fallen 37 percent in the first quarter, according to estimates from more than 1,700 securities analysts compiled by Bloomberg. Alcoa, the first Dow Jones Industrial Average company to post results for the first quarter, reported a larger-than-estimated loss.
“The risk associated with results of U.S. companies is causing a risk-aversion bid into the yen,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment- banking unit of Credit Agricole SA.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, climbed for a third day, rising 0.2 percent to 85.420.
‘Fragile’ Markets
“With the basis for the recent euphoria about the global economy and stock markets still looking to be fragile, I want to take profits on recent gains before major events in the U.S. such as corporate profit announcements,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
The yen rose for a second day against the dollar, the first back-to-back gain in almost three weeks, on speculation General Motors Corp. is speeding up preparations for a possible bankruptcy filing.
“The potential collapse of GM is definitely negative for the dollar,” said Kengo Suzuki, a currency strategist in Tokyo at Shinko Securities Co., a unit of Japan’s second-largest banking group.
U.K. Contraction
The U.K. economy contracted in the first quarter as the recession increasingly resembled the one that started in 1979 when Margaret Thatcher became prime minister, the National Institute of Economic and Social Research said.
Sales of German goods abroad fell 0.7 percent from January, when they slipped a revised 7.4 percent, the Federal Statistics Office in Wiesbaden said today.
Gains in the yen may be tempered before a Japanese report tomorrow that economists say will show machinery orders declined for a fifth month.
“Japan’s economy is in bad shape,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “There is no reason to buy the yen right now.”
Machine Orders
Machine orders, an indicator of capital investment in the next three to six months, dropped 6.9 percent in February from the previous month, according to a Bloomberg News survey before the release of the statistics bureau report.
Japan’s current-account surplus narrowed in February as the recession eroded demand for the nation’s exports. The surplus shrank 55.6 percent to 1.117 trillion yen ($11 billion) from a year earlier, the Ministry of Finance said today. Japan reported a current-account deficit in January, its first in 13 years.
The euro may extend its decline against the dollar to this year’s low of $1.2457 reached on March 4 should the currency fail to remain above so-called support at $1.3043, said Masashi Hashimoto, a senior analyst at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest banking group.
The support level is the 65-day moving average, Tokyo-based Hashimoto said. Daily momentum indicators such as the moving average convergence/divergence and the stochastic oscillator are also showing sell signals for the euro versus the yen, Hashimoto said in a research note today. Support is where buy orders may be clustered.
