BLBG: Dollar Rises to Two-Week High on Signs of Economic Recovery
By Ben Levisohn
April 23 (Bloomberg) -- The dollar advanced to a two-week high against the yen as government reports showed U.S. new-home sales rose in March by the most in almost five decades and orders for durable goods surged.
The euro rose from the lowest level in almost a year versus the dollar as Greece asked the European Union and the International Monetary Fund to activate a bailout of as much as 45 billion euros ($60 billion). The yen fall against most of its major counterparts as signs of a U.S. recovery before next week’s Federal Reserve meeting buoyed riskier assets.
“One is getting the impression that maybe economic conditions no longer warrant emergency monetary conditions,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “Risk appetite has returned, and with lower risk you short the yen and roll it into higher-yielding assets.” A short is a bet a currency will decline.
The dollar increased 0.8 percent to 94.20 yen at 11:04 a.m. in New York, from 93.49 yen yesterday, after reaching 94.32 yen, the highest level since April 6. The euro advanced 0.5 percent to $1.3365, from $1.3295, after touching $1.3202, the lowest level since April 30, 2009. The euro gained 1.5 percent to 125.82 yen, from 124.28 yen.
The greenback was headed for its first five-day rally in three weeks versus the yen, appreciating 2.2 percent on signs of U.S. economic strength. The euro has decreased 1.4 percent versus the dollar this week.
Kiwi Versus Yen
New Zealand’s dollar increased 1.1 percent to 67.19 yen and Brazil’s real gained 0.9 percent to 53.43 yen today on speculation investors will increase carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark of 0.1 percent has made the yen popular for funding such transactions.
Bookings for U.S. durable goods excluding transportation items increased 2.8 percent last month after a 1.7 percent gain in February, the Commerce Department reported. The median forecast of 75 economists in a Bloomberg News survey was for a 0.7 percent advance. Total orders unexpectedly dropped 1.3 percent, depressed by a 67 percent plunge in demand for commercial aircraft, which is often volatile.
New-home sales increased 27 percent in March, the most since April 1963, after a 4.1 percent decrease in the previous month, the Commerce Department reported. The median forecast of 77 economists in a Bloomberg survey was for a 5.5 percent gain.
‘Growing Bloc’
The dollar earlier rose versus the yen as CNBC, citing Federal Reserve sources that it didn’t identify, reported that a “growing bloc” of policy makers favor sales of assets. The central bank is due to release its statement on April 28.
Futures trading on the CME Group Inc. exchange showed a 57 percent chance that the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its November meeting, up from 43 percent odds a week ago. The Fed has kept the benchmark rate in a range of zero to 0.25 percent since December 2008.
Greece called for financial assistance in an unprecedented test of the euro’s stability and European political cohesion. The request needs approval from all 15 other euro-area countries including Germany, where surveys have shown public opposition to aiding Greece.
The nation’s problems are testing the euro’s status as a reserve currency, according to Adam Cole, head of global currency strategy at Royal Bank of Canada in London.
‘Fragmented Nature’
“The fragmented nature of the European bond market will call into question the euro’s credibility as a reserve currency,” Cole said. “That’s why the problems of the periphery countries are important.”
Canada’s dollar dropped for a third day as a government report showed the annual inflation rate unexpectedly slowed in March to 1.4 percent from 1.6 percent in the previous month.
“The number was softer than expected,” said Camilla Sutton, director of currency strategy at Bank of Nova Scotia in Toronto. “The Canadian dollar has weakened.”
The Canadian currency declined 0.3 percent to C$1.0030 per U.S. dollar, from C$1.0004 yesterday. It was at parity with the greenback on April 6 for the first time since July 2008.
The Bank of Canada signaled on April 20 it may be the first among the Group of Seven nations to increase borrowing costs as economic growth accelerates and stokes inflation.
The Australian dollar was the second-biggest loser against its U.S. counterpart after the yen among the most-traded currencies as Reserve Bank Governor Glenn Stevens said interest rates are “close to average,” damping speculation he will raise the 4.25 percent target lending rate.
If Australia’s economy “is growing close to trend, and inflation is close to target, one would expect interest rates to be pretty close to average,” Stevens said in an address at a business forum at the University of Southern Queensland. “Those interest rates are now pretty close to that average.”
Australia’s currency decreased 0.6 percent to 92.17 U.S. cents, from 92.75 yesterday.
To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net
