BGBL: Yen, Dollar Fall as Reports Show Asian Economic Recovery Gaining Momentum
The yen fell against all other major currencies and the dollar declined on signs Asia’s economic recovery is gaining momentum, damping demand for safer assets.
Japan’s currency dropped for the first time in four days versus the euro as Asian stocks advanced after reports showed Australia’s manufacturing grew for a seventh month and South Korea’s consumer prices rose. The dollar fell toward a three- month low against the euro before data that may show U.S. manufacturing expanded at a slower pace, giving the Federal Reserve more reason to keep interest rates near zero. South Korea’s won advanced to a six-week high.
“Growth in Asian economies looks solid,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “This is supportive of equities and risk-taking appetite. The yen and the dollar are likely to be sold.”
The yen weakened to 113.08 per euro at 1:48 p.m. in Tokyo from 112.84 in New York last week. Japan’s currency slid 0.5 percent to 78.59 per Australian dollar, and lost 0.3 percent to 62.96 against New Zealand’s currency. The yen was at 86.46 per dollar from 86.47.
The greenback fell 0.2 percent to $1.3076 per euro, after dropping to $1.3107 on July 29, the weakest since May 4. The U.S. currency slipped to $1.5718 per pound from $1.5689, after declining to $1.5734, the lowest since Feb. 17.
Asian Recovery
The yen dropped for a third day against the Aussie after the Australian Industry Group and PricewaterhouseCoopers said its performance-of-manufacturing index rose 1.5 points to 54.4 in July. Korea’s consumer prices climbed 0.3 percent from June when they fell 0.2 percent, official figures showed.
China’s Purchasing Managers’ Index was at 51.2 in July from 52.1 in June, the Federation of Logistics and Purchasing said yesterday. A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics fell to 49.4 in July from 50.4 in June. Readings above 50 show expansion.
The MSCI Asia Pacific Index of shares rose 1.1 percent and the Shanghai Composite Index climbed 1.2 percent.
“We feel pretty positive about the outlook in Asia, particularly in China,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd. “The Aussie and kiwi will be supported.”
Australia’s currency rose 0.5 percent to 90.88 U.S. cents after reaching 91.09, the strongest since May 5. New Zealand’s dollar gained 0.3 percent to 72.85 cents.
Dollar Index
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, declined for a fourth day on speculation the recovery in the world’s biggest economy is lagging behind other regions. The index dropped 0.1 percent to 81.434.
The Institute for Supply Management’s manufacturing gauge in the U.S. fell to 54 in July from 56.2 in June, according to economists surveyed by Bloomberg before the data today.
“The U.S. economy is certainly losing some steam,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “We are seeing bond yields slide, dragging the U.S. dollar lower in tandem.”
U.S. economic growth slowed to 2.4 percent annual rate in the second quarter, from 3.7 percent in the prior three months, the Commerce Department said July 30.
Won Gains
The won advanced for a second day after a report showed exports increased last month more than economists forecast.
Government data released Aug. 1 showed overseas shipments gained 29.6 percent from a year earlier, compared with the median forecast for a 27.4 percent increase in a Bloomberg survey. Imports rose 28.9 percent, resulting in a trade surplus of $5.7 billion.
“We should see further won gains, given the continuing strength in net exports, which remain very robust,” said Christian Carrillo, a Tokyo-based senior rates strategist at Society General SA. “The only element blocking further currency appreciation appears to be central bank intervention.”
The won appreciated 0.8 percent to 1,172.55 per dollar, after reaching 1,171.51, the strongest since June 21.
Gains in the euro may be tempered as FX Concepts LLC, the hedge fund that bought the currency in June just as it began a 9.7 percent surge against the dollar, now says it’s almost time to get out of Europe’s common currency.
The firm, which manages $8 billion in assets, expects the euro’s advance from a four-year low on June 7 to come undone by September, partly because European austerity programs will start to weigh on growth. Reports last week that showed Spanish consumer confidence falling to the lowest level this year and banks tightening credit standards in the region suggest the budget measures may already be undermining the recovery.
“Austerity is really bad for growth,” said Jonathan Clark, vice chairman at New York-based FX Concepts, the world’s biggest currency hedge fund. “In the U.S., austerity is mainly on the state level, but in Europe they are whole-hog into cutting spending to reduce deficits. Under a pessimistic scenario, the European currencies are in a lot of trouble.”
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
