BLBG: Yen Falls as Company Profits, Stocks Reduce Demand for Haven
The yen fell against most of its major counterparts as better than estimated corporate profits this month spurred a gain in stocks, reducing the appeal of the currency as a refuge.
Taiwan’s dollar had its biggest advance against the U.S. currency in nine years and the South Korean won rose to a four- month high after China Mobile Ltd. agreed to buy 12 percent of Far EasTone Telecommunications Co., the first investment by a Chinese state-owned company in Taiwan in 60 years. The MSCI World Index of equities climbed 1.2 percent, and U.S. stock- index futures advanced.
“Equity markets are going up,” said Paul Robson, a foreign-exchange strategist in London at Royal Bank of Scotland Group Plc. “Investors are looking to take on more risk and are taking positions in the likes of sterling, the Aussie, the kiwi and the Canadian dollar.”
The yen weakened 0.6 percent to 130.43 per euro at 7:29 a.m. in New York, from 129.61 yesterday. Japan’s currency slid 0.6 percent to 98.26 per dollar from 97.66. The U.S. currency traded at $1.3273 per euro, compared with $1.3271.
The greenback fell this month against all of the 16 most actively traded currencies tracked by Bloomberg, losing 3.3 percent against the pound, 0.9 percent versus the yen and 11 percent versus South Africa’s rand.
Investors should buy the Australian and New Zealand dollars against the yen and the Canadian dollar versus the U.S. dollar over the next month, said Robson.
European Stocks
Demand for the safety of the dollar weakened as European stocks extended their monthly gains. The Dow Jones Stoxx 600 Index was 14 percent higher in April and up 1.5 percent this year. The MSCI World index rose 11 percent this month, the most since 1989. Futures on the Standard & Poor’s 500 Index gained 1.7 percent today.
“The dollar is very much at the mercy of the equity markets,” said Adam Cole, head of global currency strategy in London at Royal Bank of Canada Europe Ltd. “If they maintain this upward momentum, that will translate into dollar weakness quite mechanically.”
The yen also declined on speculation the swine flu outbreak will have a minimal economic impact even as the World Health Organization raised its pandemic alert to 5, the second-highest level. The agency confirmed 154 cases in 9 countries, and hundreds of people are being tested for the virus from Australia to New York.
“The news we’re getting out of Mexico suggests that the economic risks related to this are likely to be relatively minor,” Michael Klawitter, a currency strategist in Frankfurt at Dresdner Kleinwort. “Risk perception is declining. This is favoring high-yielding currencies.”
Won Versus Dollar
The South Korean won advanced 4.5 percent to 1,282.95 per dollar, after touching 1,281.80, the strongest since Jan. 2. The currency advanced 8.5 percent this month. Taiwan’s dollar gained as much as 1.8 percent, the biggest advance since January 2000, before trading at NT$33.0770.
The yen fell against 15 of the 16 major currencies today as the Bank of Japan said the economy will shrink 3.1 percent this fiscal year and prices will tumble as the recession takes a toll on spending. The central bank cut its forecast from a 2 percent contraction predicted three months ago, according to its semiannual outlook released today in Tokyo.
The economy will contract 4.2 percent in the year to March 2010, more than twice the pace the central bank projected three months ago, according to economists surveyed by Bloomberg News. Governor Masaaki Shirakawa left the overnight lending rate at 0.1 percent today.
Rate Cut
New Zealand’s dollar fell against the U.S. dollar after the central bank cut borrowing costs to a record low and said the benchmark will stay low until late 2010, reducing the appeal of the nation’s assets.
Reserve Bank Governor Alan Bollard reduced the overnight cash rate by a half-percentage point to 2.5 percent. He has lowered borrowing costs by 5.75 percentage points since July to counter the nation’s worst recession in more than three decades.
Rates may go lower and will stay down “until the latter part of 2010,” Bollard said.
This was “a huge reaction on a huge statement,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp. “The yield support for the kiwi has evaporated even more after today, which should be a medium-term drag.”
New Zealand’s dollar weakened to 56.74 U.S. cents, from 57.30 cents yesterday.
