The yen and the dollar fell against their higher-yielding counterparts after Australia’s central bank unexpectedly raised interest rates, fueling optimism that the global economic recovery is being sustained. Australia’s dollar advanced to parity with its U.S. peer as Reserve Bank Governor Glenn Stevens said the economy has “relatively modest amounts of spare capacity.” The U.S. currency fell against the euro on speculation the Federal Reserve will this week increase purchases of government debt, debasing the dollar. The Norwegian krone advanced against 14 of its 16 most-actively traded peers as oil prices rose. “We’re seeing a nice pick-up in global activity and that means you will see strong or sustained demand for commodity and high-yielding currencies,” said Kenneth Broux, a senior market economist at Lloyds Banking Group Plc in London. “You can’t play down the RBA rate hike. The statement was open ended, which means it does not close the door to further hikes.” The yen dropped to 112.74 per euro as of 9:25 a.m. in London from 111.85 in New York yesterday. It declined 1.5 percent to 80.61 per Australian dollar and lost 0.4 percent to 11.5800 per South African rand. The yen was at 80.65 per dollar from 80.51. The dollar fell to $1.3972 per euro from $1.3893 yesterday, when it slid to $1.4011, the weakest since Oct. 25. Japan’s currency snapped a two-day gain versus the euro as Asian stocks advanced after the Reserve Bank of Australia’s announcement. The MSCI Asia Pacific Index of regional shares gained 0.3 percent. The MSCI World Index rose for a fourth day. Commodity Producers China’s purchasing managers’ index released yesterday rose to 54.7 in October from 53.8 in September. Statistics New Zealand said today its labor-cost index showed wages for non- governmental workers advanced 0.6 percent in the third quarter, accelerating for a second consecutive three-month period. “Manufacturing recovery is good for commodity producers and their currencies,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney. “That is negative for the U.S. dollar and the yen.” The Australian dollar climbed for a fourth day versus the greenback as Stevens raised the overnight cash rate target by a quarter percentage point to 4.75 percent, the first increase in six months. The decision, predicted by seven of 24 economists surveyed by Bloomberg News, was the second straight in which Stevens defied the majority of economists’ forecasts. ‘Aussie Underpinned’ “In all likelihood the RBA will be tightening again in the coming months and this underpins the outlook” for the Aussie, Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, wrote in a client note. Australia’s currency may move toward $1.0130 if it can “muster the energy to push beyond the $1.005 level today,” she said in the note. Australia’s dollar climbed 1.3 percent to 99.99 U.S. cents. It rose as high as $1.0013, surpassing parity for the first time since Oct. 15. The Norwegian krone advanced 0.8 percent to 5.8359 against the dollar and was 0.2 percent stronger at 8.1529 against the common European currency. Crude for December delivery rose as much as 0.8 percent to $83.60 a barrel, after rallying yesterday to the highest intra-day price since Oct. 14. The U.S. currency fell for the third day in four against the euro on speculation Fed policy makers will announce a new asset-purchase plan, known as quantitative easing, after their Nov. 2-3 meeting to bolster the recovery. Purchase Program Fifty-three of 56 economists surveyed last week said the Fed will restart a purchase program. Twenty-nine estimated it will pledge to buy $500 billion or more, while another seven forecast $50 billion to $100 billion in monthly purchases without a specified total. “We could well find ourselves in a situation where the Fed goes down the QE route,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “We’ll see further dollar weakness, particularly if the Fed puts into place a program that meets or exceeds market expectations.” The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners including the euro, fell 0.5 percent to 76.922. The dollar’s losses may be limited if Republicans make gains in U.S. mid-term elections today and investors bet that will help limit government spending, UBS AG said. Reports “suggest the Republicans will make strong gains in both the House of Representatives and the Senate, which could be dollar-supportive in the near term should investors expect less fiscal spending as a result,” Gareth Berry, a currency strategist in Singapore at UBS AG, wrote in a report today. The yen also weakened after Japanese Finance Minister Yoshihiko Noda said today the government is watching markets closely and is ready to take bold action on currencies if necessary. Noda said Japan will cooperate appropriately with the U.S. and Europe. The movement of the yen has been one-sided in the past few days, he said in a briefing after a cabinet meeting. To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ron Harui in Singapore at rharui@bloomber.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.ney

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