BLBG: Dollar, Yen Weaken as Recovery Optimism Boosts Demand for Yield
June 10 (Bloomberg) -- The dollar and the yen weakened against higher-yielding currencies on speculation the global recession is easing, spurring demand for riskier assets.
The New Zealand dollar, Australian dollar and South Korean won gained the most of the 16 major currencies as Asian stocks advanced. Commodity-related currencies gained as a gauge of raw- materials prices climbed to a seven-month high. Sweden’s krona strengthened for a second day on speculation plans to cut state spending in Latvia will ease concern that Swedish banks would face losses.
“The rally of stocks reduced risk aversion, thereby buoying capital inflows into higher-yielding currencies,” said Toshiya Yamauchi, manager of the foreign-exchange margin trading department at Ueda Harlow Ltd. in Tokyo. “Rising commodity prices accelerated the flow, as evidenced by the strength of the Australian dollar.”
The New Zealand dollar rose to 62.94 U.S. cents as of 1:15 p.m. in Tokyo from 62.71 yesterday in New York. It climbed 0.5 percent to 61.40 yen. The Australian dollar advanced to 80.43 U.S. cents from 80.15 cents, and gained 0.5 percent to 78.47 yen. Korea’s won advanced 1.4 percent to 1,246.85 per dollar.
The yen dropped to 137.29 per euro from 136.98 yesterday. The dollar traded at $1.4072 per euro from $1.4065. The yen bought 97.54 per dollar from 97.38. The krona gained to 7.6636 per dollar from 7.6809.
The Nikkei 225 Stock Average rose 1.7 percent and the MSCI Asia Pacific Index of regional shares rallied 1.9 percent. The Reuters/Jefferies CRB Index of commodity prices rose 2.5 percent yesterday to the highest level since Nov. 11. Crude oil climbed as high as $70.94 a barrel today, the most since Nov. 4.
Less Need for Dollars
“When optimism about the global economy is out there, people feel less need to hold the dollars which they have accumulated for a rainy day,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co. “The dollar is likely to remain under pressure.”
Benchmark interest rates are 3 percent in Australia, 2.5 percent in New Zealand, and 2 percent in Korea, compared with as low as zero in the U.S. and 0.1 percent in Japan.
Australia’s dollar advanced for a second day as an industry report showed consumer confidence jumped in June by the most in 22 years, adding to signs the economy may avoid a recession.
The sentiment index increased 12.7 percent from May to 100.1 points, according to a Westpac Banking Corp. and Melbourne Institute survey conducted between June 1 and June 7. It’s the first time since January 2008 that the index was above 100, indicating optimists outnumber pessimists.
The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 79.817, after falling 1.3 percent yesterday.
Retail Sales
A U.S. report tomorrow may show retail sales increased in May for the first time in three months, signaling the global recovery is gaining pace. Sales climbed 0.5 percent, after falling 0.4 percent in April according to a Bloomberg News survey of economists
The krona gained versus the dollar and the euro after Swedish Finance Minister Anders Borg said yesterday the Latvian government should do “what is necessary” to present a responsible economic policy.
“Baltic stress is manageable for Sweden’s economy and banking system and the krona remains attractive,” analysts including London-based Ray Farris at Credit Suisse Group AG wrote in a note yesterday. “If conditions in the Baltics were to improve, the krona should rally notably.”
Korean Won
Korea’s won halted a two-day loss as overseas investors added to their holdings of the nation’s shares for a fourth day.
The currency has surged 21 percent in past three months, Asia’s best performer, as signs the global recession is abating bolstered demand for emerging-market assets. Finance Minister Yoon Jeung Hyun said today that domestic financial markets have been stable despite increased tensions with North Korea, which last month tested a nuclear weapon and threatened military strikes against the South.
“A rebound in stocks and foreign purchases of shares are probably behind the won’s strength today,” said Sam Hong, a currency dealer at Shinhan Bank in Seoul. “There are also lingering concerns about North Korea and the won will still be stuck in a broad range between 1,230 and 1,270 for a while.”
