BLBG:Euro Volatility Near Almost Four-Month Low as Kiwi Dollar Drops
The euro’s volatility against the dollar was near the lowest in almost four months as investors weighed prospects for additional monetary stimulus by the European Central Bank and receding credit risk in the region.
ECB President Mario Draghi said this week that policy makers had an “open mind” on a negative deposit rate. The extra yield investors demand to hold 10-year Spanish bonds over same maturity German debt narrowed to the least since August 2011 yesterday. New Zealand’s dollar sank to a five-week low after Reserve Bank Governor Graeme Wheeler said the central bank has sold the currency. Australia’s dollar trimmed losses after Chinese data showed imports grew more than economists estimated.
“I don’t think the euro is going to break out of the range in the near term,” said Peter Dragicevich, a Sydney-based currency economist at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “The spread between the peripheral bond yields and the German yields continue to compress, which is a pretty good sign in terms of reduction of tail risk in Europe. That’s providing an offset to the weak macro environment and the risk of more ECB action.”
One-week implied volatility for euro-dollar rate, based on currency option prices, was at 7.62 percent as of 12:20 p.m. in Tokyo, after dropping to 7.33 percent yesterday, the lowest since Jan. 10.
The shared currency traded at $1.0388 from $1.3079 yesterday. It rose 0.1 percent to 129.62 yen after earlier dropping as much as 0.4 percent.
New Zealand’s kiwi dollar plunged 0.7 percent to 84.01 U.S. cents and touched 83.60, the lowest since April 1. The yen was little changed at 99.04 per dollar from yesterday, when it rose 0.3 percent. It had depreciated 2 percent over the three sessions ended May 6.
ECB Policy
Demand for the euro was limited ahead of data forecast to show German industrial production shrank in March from the previous month. Economists surveyed by Bloomberg before the figures due today predict a 0.1 percent contraction, after a 0.5 percent expansion in February.
“We will be looking at all the data that arrives from the euro-area economy in the coming weeks and, if necessary, we are ready to act again,” Draghi said on May 6 after cutting the benchmark interest rate to a record-low 0.5 percent last week.
The extra yield on 10-year Spanish debt over same-maturity bunds fell to 280 basis points, or 2.80 percentage points yesterday, the least since August 2011. The 10-year yield spread for Italian and German securities shrank to 256 basis points, the narrowest since the end of January.
RBNZ Intervention
Reserve Bank of New Zealand Governor Wheeler told parliament’s finance and expenditure select committee in Wellington today that “there has been some intervention.”
He said he reserves the right for further currency sales to damp gains in the kiwi. The local dollar has surged 45 percent against the greenback since the end of 2008, the biggest advance among over 150 currencies tracked by Bloomberg.
“Wheeler is clearly indicating he wants to see a lower New Zealand dollar, because of what the currency’s strength is doing to the long-term health of the economy, especially to manufacturing,” said Greg Gibbs, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc. “They don’t want the credit-fueled recovery being forced on them by unprecedented monetary easing from global central banks.”
In China, imports rose 16.8 percent in April from the prior month, the customs administration said today in Beijing. That was more than the 13 percent increase expected by economists in a Bloomberg News survey. Exports grew 14.7 percent last month from March. China is the biggest trading partner for both Australia and New Zealand.
The so-called Aussie slid 0.1 percent to $1.0180, after earlier weakening as much as 0.3 percent.
To contact the reporters on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
