BLBG: Yen Drops as Evidence Slump Waning Spurs High-Yield Demand
The yen declined against the dollar for a fourth day in the longest stretch of declines since March as China’s manufacturing expanded for the first time in nine months, encouraging investors to buy higher-yielding assets.
Australia’s dollar and the South African rand rose to the highest level versus the greenback since October as evidence the worst of the global recession is over reduced demand for the safety of the world’s main reserve currency. Mexico’s peso advanced for a second day as the government said the flu outbreak likely peaked last week.
“People are comfortable going long risky trades,” said David Watt, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada’s biggest bank by assets. “The global economic slowdown is losing momentum. The market is building a story that is constructive for cyclical currencies.”
The yen weakened 0.3 percent to 99.39 per dollar at 9:56 a.m. in New York, from 99.11 on May 1, after earlier trading at 99.57, near its weakest level since April 17. Japan’s currency slid 0.4 percent to 132.11 per euro from 131.59. The dollar traded at $1.3291 per euro, compared with $1.3273.
The Australian dollar increased as much as 1.1 percent to 73.89 U.S. cents, the strongest level since Oct. 6, as the CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 50.1 in April from 44.8 in March. A reading above 50 indicates an expansion.
The rand appreciated as much as 3.2 percent to 8.2918 per dollar, the strongest level since Oct. 2. The Aussie and rand gained 13 percent and 25 percent in the past two months.
Yen Versus Rand
Japan’s currency fell 3 percent to 11.97 versus the rand and 1.1 percent to 73.17 against the Australian dollar on speculation investors resumed carry trades, in which they get funds in countries with low borrowing costs and buy assets where rates are higher. The target lending rate is 0.1 percent in Japan and zero to 0.25 percent in the U.S., compared with 3 percent in Australia and 8.5 percent in South Africa.
Fluctuations of the yen versus the dollar fell, a sign investors are betting the rally in riskier assets will continue, according to data compiled by Bloomberg. Volatility calculated from one-month yen options was 13.9 percent, from 18.5 percent by the end of last month and a high of 41.8 percent Oct. 24.
“It’s difficult to be optimistic for the yen at a time when risk aversion is declining,” said Michael Klawitter, a currency strategist with Dresdner Kleinwort in Frankfurt. “Downward momentum in the economy seems to be slowing.”
Euro’s Slide
The euro declined earlier versus the dollar after Germany’s Federal Statistics Office in Wiesbaden said retail sales, adjusted for inflation and seasonal swings, unexpectedly fell 1 percent in March from the previous month and the European Commission cut its forecasts for economic growth, predicting a 4 percent contraction in 2009 and a 0.1 percent decline in 2010.
The shrinking 16-nation economy will prompt the European Central Bank to lower the main refinancing rate by a quarter- percentage point to 1 percent on May 7, according to the median forecast of 44 economists surveyed by Bloomberg.
“The euro is trading at the upper end of its range, so who wants to bet on the euro before the ECB event this week?” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Stock markets have rallied since the start of April, and the euro is flat.”
The dollar will trade at $1.315 by the end of the week, Chandler said.
The euro is likely to trade within a “new but familiar range” of $1.33 to $1.37 in coming days, according to UniCredit Markets & Investment Banking.
“The euro should benefit from lower risk aversion and from the European Central Bank refraining from asset purchases,” Roberto Mialich, a currency strategist in Milan at UniCredit, wrote in a note today.
The Federal Reserve and U.S. banking regulators will reveal the results from stress tests on the nation’s 19 biggest banks on the same day as the ECB’s decision.
“The results of the U.S. banks’ stress tests may pose downside risks for the markets,” said Joseph Capurso, a foreign-exchange strategist at Commonwealth Bank of Australia in Sydney. “As such, the dollar may garner support as a ‘safe- haven’ currency.”
Mexico’s peso advanced 0.9 percent to 13.6556 per U.S. dollar as Health Minister Jose Cordova said the flu outbreak is in a “declining phase” and appears to have “contained itself.”
