BLBG: Yen Drops as Evidence Slump Waning Spurs Higher-Yield Demand
The yen declined to the lowest level in almost three weeks versus the euro and slid against most of its major counterparts after an unexpected gain in U.S. pending home resales encouraged investors to buy higher-yielding assets.
Australia’s dollar and the South African rand rose to the highest level versus the greenback since October as China’s manufacturing expanded, reducing demand for safety. Mexico’s peso erased losses since the flu outbreak began last week as the government said the nation may return to normal after closing theaters and restaurants to curb the disease’s spread.
“We are on the verge of accelerating into a new regime of risk taking,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York.
The yen slid 0.6 percent to 132.33 per euro at 11:52 a.m. in New York, from 131.59 last week. It touched 132.88, the weakest level since April 14. The yen traded at 99.07 per dollar, compared with 99.11. The dollar declined 0.6 percent to $1.3358 per euro from $1.3273.
The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 0.6 percent to 84.067. It lost 5 percent in the past two months.
The National Association of Realtors reported that pending home resales in the U.S. jumped 3.2 percent in March after a 2 percent gain in the previous month. The median forecast of 32 economists surveyed by Bloomberg was for no change.
Australian Dollar
The Australian dollar increased as much as 1.2 percent to 73.97 U.S. cents, the highest level since Oct. 6, as the CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 50.1 last month from 44.8 in March, the first increase in nine months. A reading above 50 indicates expansion.
The rand appreciated as much as 3.2 percent to 8.2918 per dollar, the strongest level since Oct. 2. The Aussie and rand gained 13 percent and 25 percent in the past two months.
“People are comfortable going long on risky trades,” said David Watt, a senior currency strategist in Toronto at RBC Capital Markets, a unit of Canada’s biggest bank by assets. “The global economic slowdown is losing momentum. The market is building a story that is constructive for cyclical currencies.”
Japan’s currency fell 2.4 percent to 11.88 versus the rand and 1.1 percent to 73.84 against the Australian dollar on bets investors resumed carry trades, in which they get funds in countries with low borrowing costs and buy assets where rates are higher. The target lending rate is 0.1 percent in Japan and zero to 0.25 percent in the U.S., compared with 3 percent in Australia and 8.5 percent in South Africa.
Currency Volatility
Traders’ expectations of fluctuation in major currencies declined to the lowest level in eight months, encouraging investors to engage in carry trades.
Implied volatility on seven major currencies declined to 13.77 percent today, the lowest since September, according to a JPMorgan Chase & Co index.
“It’s difficult to be optimistic for the yen at a time when risk aversion is declining,” said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. “Downward momentum in the economy seems to be slowing.”
Mexico’s peso advanced as much as 4 percent to 13.2430 per U.S. dollar, the biggest intraday gain since Oct. 28, as Health Minister Jose Cordova said the flu outbreak is in a “declining phase” and appears to have “contained itself.” The currency lost 3.2 percent last week.
The shrinking 16-nation economy will prompt the European Central Bank to lower the main refinancing rate by a quarter- percentage point to 1 percent on May 7, according to the median forecast of 44 economists surveyed by Bloomberg.
‘Upper End’
“The euro is trading at the upper end of its range, so who wants to bet on the euro before the ECB event this week?” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Stock markets have rallied since the start of April, and the euro is flat.” The dollar will strengthen to $1.315 by the end of the week, according to Chandler.
The single currency is likely to trade within a “new but familiar range” of $1.33 to $1.37 in coming days, according to UniCredit Markets & Investment Banking.
“The euro should benefit from lower risk aversion and from the European Central Bank refraining from asset purchases,” Roberto Mialich, a currency strategist in Milan at UniCredit, wrote in a note today.
The Federal Reserve and U.S. banking regulators will reveal the results of stress tests on the nation’s 19 biggest banks on the same day as the ECB’s decision.
“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.”
