BLBG: Dollar Falls as Lower Volatility, Libor Erode Safety Demand
The dollar declined beyond $1.37 per euro for the first time in a week as falling volatility of currencies and stocks spurred speculation investors will seek higher-yielding assets.
New Zealand’s and Canada’s dollars gained versus the U.S. currency as crude oil prices rose above $60 a barrel and copper advanced, encouraging demand for currencies of commodity producers. The greenback slid to the lowest level against the currencies of six major U.S. trading partners since January as stock-index futures advanced and banks’ borrowing costs fell.
“The currency market is very much influenced by the temperature of risk,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “Overall sentiment is building on itself, contributing to dollar selling.”
The euro advanced 0.4 percent to $1.3688 at 9:09 a.m. in New York, from $1.3630 yesterday. It earlier touched $1.3712, the highest level since May 13. The yen appreciated 0.2 percent to 95.79 per dollar from 95.97. The euro increased 0.2 percent to 131.11 yen from 130.81.
The Dollar Index, used by Intercontinental Exchange Inc. to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, dropped as much as 0.5 percent to 81.656, the lowest level since Jan. 9, on reduced demand for safety.
Implied volatility on major currencies, which reflects investors’ expectations of currency swings, fell to 13.77 percent, from 13.83 yesterday, according to data compiled by JPMorgan Chase & Co. The gauge was at 17.22 percent at the end of March. A drop in volatility tends to signal reduced demand for options to protect investors from wild currency swings.
‘Calming’ Risk Aversion
“We’ve seen in recent days that euro-dollar is still being driven by risk aversion,” said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany’s second- biggest lender. “It’s of course calming for many investors when volatility falls.”
The VIX, as the Chicago Board Options Exchange Volatility Index is known, and Europe’s VStoxx Index have both retreated to their lowest levels since Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history. Standard & Poor’s 500 Index futures expiring in June added 0.3 percent.
The London interbank offered rate, or Libor, for three- month dollar loans decreased 0.04 percentage point to 0.72 percent, bringing its drop over the past four days to almost 0.14 percentage point, according to the British Bankers’ Association. The rate was 1.43 percent at the end of 2008.
Canada’s Dollar
Canada’s dollar advanced as much as 0.7 percent to C$1.1478 per U.S. dollar, near the strongest level since November, as crude oil for July delivery rose as much as 2.5 percent to $61.15 a barrel on the New York Mercantile Exchange. Raw materials such as crude oil and gold make up more than half of Canada’s export revenue.
The New Zealand dollar rose 0.6 percent to 60.55 U.S. cents, extending this month’s gain to 7.5 percent. The Australian dollar increased 0.2 percent to 77.60 U.S. cents, near the strongest level since October.
Sterling advanced as much as 0.4 percent to $1.5536, the highest level since Dec. 18, as lower Libor rates signaled credit markets are thawing.
The pound may climb to $1.5750 if it rises through the 200- day moving average versus the U.S. currency of $1.5554, Sue Trinh, a senior currency strategist at Royal Bank of Canada in Sydney, wrote in a report today.
