BLBG: Yen Drops as Speculation Global Slump Waning Spurs Yield Demand
The yen fell for a fifth day against the euro, its longest losing streak in six weeks, and slid to a six-month low against Australia’s dollar as signs the global recession is easing spurred investors to buy high-yield assets.
The dollar approached a three-week low against the euro before a German report today that may show retail sales in Europe’s largest economy rebounded in March, sapping demand for the greenback as a refuge from the worldwide slump. Malaysia’s ringgit rose for a fourth day versus the dollar after China’s manufacturing expanded for the first time in nine months, spurring investors to purchase emerging-market securities.
“The market wants to put some of the risk trade on that they took off toward the end of last week,” said Greg Gibbs, a currency strategist at RBS Group Australia Ltd. in Sydney. “The market is seeing confidence in the global recovery and hence the dollar is trending lower.”
The yen dropped to 132.49 per euro at 6:30 a.m. in London from 131.54 in New York on May 1, after earlier falling to 132.88, the lowest since April 14. Japan’s currency weakened to 99.44 per dollar from 99.11.
The dollar depreciated to $1.3322 per euro from $1.3273 in New York on May 1. It reached $1.3386 on April 30, the weakest since April 13. Against the greenback, Malaysia’s ringgit climbed to 3.5280 from 3.5585.
The yen declined 1 percent to 73.11 per Australia’s dollar, touching 73.56, the weakest since Oct. 14. It fell 1 percent to 57.12 against New Zealand’s dollar. The volume of currency trading is likely to be less than normal because of Japan’s “Golden Week” holidays from today to May 6, Gibbs said.
German Retail Sales
The yen declined to its lowest versus the euro in almost three weeks. Germany’s Federal Statistics Office in Wiesbaden may say today that retail sales, adjusted for inflation and seasonal swings, rose 0.2 percent in March from February when sales fell 0.2 percent, a Bloomberg survey of economists showed.
“Recent economic reports suggest the global recession is abating in intensity,” said John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney. “Improved investor risk-appetite may continue to weigh on the ‘safe haven’ yen.”
Europe’s economy may be moving past the worst of the recession, data last week indicated. Confidence in the euro area increased for the first time in 11 months in April, the European Commission said, while Germany’s Ifo business confidence index rebounded from a 26-year low.
The yen dropped versus 15 of the 16 most-active currencies as Asian equities and U.S. stock futures rose. The MSCI Asia- Pacific Index of regional shares climbed 2.1 percent and the Standard & Poor’s 500 Index futures advanced 0.4 percent.
‘Risk-Taking’
“The markets are aware that as long as U.S. stocks hold up, it can manifest risk-taking trades via strategies such as carry trades or outright long positions on emerging-market currencies,” wrote Philip Wee, senior currency economist at DBS Group Holdings Inc. in Singapore, in a research note.
Indonesia’s rupiah advanced 1.1 percent to 10,495 per dollar and South Korea’s won rose 0.5 percent to 1,277.30.
Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and 2.5 percent in New Zealand.
That attracts investors to carry-trade strategies in which they borrow funds in countries with lower interest costs, such as Japan, and buy assets in nations with higher rates, allowing them to pocket the difference.
Futures traders pared bets the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.
Net Shorts Pared
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 4,579 on April 28, compared with net shorts of 13,695 a week earlier. The figures are sometimes used as a contrary indicator.
The yen also fell as the CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 50.1 in April from 44.8 in March, the investment bank said today in an e-mailed statement. A reading above 50 indicates an expansion.
The rebound in manufacturing adds to signs of recovery in the world’s third-biggest economy as China grapples with a collapse in world trade and a slowdown in property investment and construction.
Losses in the dollar may be tempered before the Federal Reserve and U.S. banking regulators reveal the results from stress tests on the nation’s 19 biggest banks this week.
Stress Tests
The government’s announcement, delayed by three days to May 7, will disclose both aggregate information about the capital buffer required to absorb losses if the recession worsens and firm-specific details, a government official said on condition of anonymity. Regulators will make the announcement after financial markets close, the person said.
“The results of the U.S. banks’ stress tests may pose downside risks for the markets,” said Joseph Capurso, a foreign-exchange strategist at Commonwealth Bank of Australia in Sydney. “As such, the dollar may garner support as a ‘safe- haven’ currency.”
The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, declined to 84.306 from 84.546 on May 1.
