BLBG: Dollar Trades Near Lowest Since 1995 Versus Yen on Bets Fed to Ease Policy
The dollar traded near the lowest level since 1995 against the yen on concern the Federal Reserve will debase its currency by stepping up purchases of government debt to bolster an economic recovery.
The euro was close to the highest since January before a report forecast to show the U.S. jobless rate rose for a second month. Australia’s dollar was set for an eight-week rally versus the greenback after climbing to a record yesterday. The yen maintained three days of gains against the U.S. currency on expectations Japan will refrain from intervening before today’s meeting of Group-of-Seven industrialized nations in Washington.
“With expectations for additional easing in the U.S. remaining strong, the dollar is hostage to selling pressure,” said Hiroshi Higa, senior strategist in Tokyo at MoneySquare Japan Inc., an online currency trading company. “The market continues to focus on monetary easing.”
The dollar stood at 82.36 yen as of 6:40 a.m. in London from 82.41 yen in New York yesterday when it touched 82.11 yen, the lowest since May 1995. The euro traded at $1.3940, compared with $1.3926 yesterday when it reached $1.4029, the highest since Jan. 28. The euro was at 114.82 yen from 114.75 yen.
Australia’s currency fetched 98.23 U.S. cents from 98.25 cents yesterday when it touched 99.18, the most since exchange controls ended in 1983.
U.S. private nonfarm payrolls rose by 75,000 in September after an increase of 67,000 in the previous month, according to the median forecast of 60 economists in a Bloomberg News survey before today’s report from the Labor Department. The jobless rate is expected to increase to 9.7 percent from 9.6 percent.
Yields, Fed Bets
Futures on the CME Group exchange show a 32 percent chance the Fed will cut its target rate for overnight bank lending to zero by November, up from a 26 percent probability a month ago. The rate is currently in a range from zero to 0.25 percent.
The yen climbed versus the dollar to stronger than the level reached Sept. 15, when Japan acknowledged intervening in the currency market to protect its export-dependent economy. Japan’s Vice Finance Minister Fumihiko Igarashi said yesterday that “it’s not our intention to engage in a currency- devaluation race.”
“Investors now feel that Japan won’t dare to intervene, given the risk of international criticism at the meeting,” said Masahiro Ito, a Tokyo-based senior manager of foreign-exchange sales and marketing at Central Tanshi FX Co., a unit of Japan’s largest money broker.
Canadian Finance Minister Jim Flaherty, who chairs the G-7 gathering, said this week that “there are concerns about interventions in currency markets” and that he’s “sure” the issue will be discussed. Brazil’s Finance Minister Guido Mantega warned on Sept. 27 of a “currency war.”
‘Unwind Longs’
Losses in the dollar were tempered on speculation traders will reduce holdings of the euro and the yen before today’s G-7 meeting and a three-day weekend for the U.S. and Japan.
“There’s a good chance that players may unwind longs in the euro and the yen,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “The euro and yen also had rapid gains this week. This could lead to buying of the dollar.”
Futures traders increased bets to the most in almost a year that the euro will gain against the dollar, figures from the Commodity Futures Trading Commission showed on Oct. 1.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 35,330 on Sept. 28, the highest amount since Oct. 20, 2009, compared with net longs of 5,097 a week earlier.
Futures positions, when they reach an extreme, are sometimes viewed as a contrarian indicator because traders often seek to cut positions when momentum in a currency shifts. A long position is a bet on an asset price’s gain.
Aussie Rally
The so-called Aussie traded within two U.S. cents of parity with the U.S. currency amid speculation the Reserve Bank of Australia will resume raising interest rates as the Fed expands monetary easing.
“We are going to try parity this year,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “The U.S. economy is going to grow tepidly below trend and they are going to continue to push the envelope on quantitative policy easing.”
There is a 58 percent probability the Reserve Bank of Australia will raise borrowing costs on Nov. 2, according to swap indexes by Credit Suisse Group AG. The probability was 41 percent on Oct. 6, a day before the government said Australia’s employers added 49,500 workers in September, more than double the median estimate from economists.
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
