BLBG:Yen Strengthens, Aussie Declines as China Lowers Growth Target; Euro Drops
The yen strengthened the most in a week against the euro after China said it will lower its target for economic growth, boosting demand for the relative safety of the Japanese currency.
Australia’s dollar declined after its biggest trading partner China said it will target economic growth of 7.5 percent this year, down from 8 percent, and the lowest goal since 2004. The dollar climbed before U.S. data that economists said will show service industries expanded, easing speculation the Federal Reserve will add to monetary stimulus. The euro pared declines against the yen after a report showed European retail sales unexpectedly rose.
“Risk sentiment has deteriorated overnight on the weaker growth outlook for China,” boosting safer currencies such as the yen, said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We think the recent yen selloff is overextended. In terms of Fed policy, we expect no change, even though there are signs of improvement in the U.S. economy. We would not be chasing dollar-yen higher.”
The yen strengthened 0.9 percent to 107.19 per euro at 9:33 a.m. in London after gaining 1.1 percent last week. Japan’s currency rose 0.7 percent to 81.25 per dollar after depreciating to 81.87, matching the weakest since May. The 17-nation common currency slid 0.2 percent to $1.3170.
The Stoxx Europe 600 Index (SXXP) of shares declined 0.9 percent. The MSCI Asia Pacific Index (MXAP) slid 0.9 percent, while futures contracts on the Standard & Poor’s 500 index fell 0.5 percent.
China will aim for inflation of about 4 percent this year, unchanged from the 2011 goal, Premier Wen Jiabao said at the annual meeting of the National People’s Congress in Beijing today.
Exporters’ Purchases
The yen rose at least 0.7 percent versus all of its 16 major counterparts amid speculation Japanese exporters are taking advantage of the currency’s drop to repatriate overseas income.
“There are apparently substantial flows from exporters,” said Teppei Ino, an analyst in Tokyo at the Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “The dollar-yen rate has neared 82, triggering buying of the yen.”
European retail sales unexpectedly rebounded from four months of declines in January, as growth in France helped to offset a drop in Germany.
Retail Sales
Sales rose 0.3 percent from December, when they fell a revised 0.5 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a drop of 0.1 percent, the median of 20 estimates in a Bloomberg News survey showed. Sales were unchanged from a year earlier.
“The euro is likely to weaken in the mid- to long-term,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “It’s hard to imagine the European economy being on a sustainable growth path as countries in the region are forced to take austerity measures because of the debt crisis.”
The Institute for Supply Management’s U.S. non- manufacturing index was at 56.2 last month, another survey showed before the report today. The gauge of U.S. service industries climbed to 56.8 in January, the highest since February 2011 and above the 50 level that signals expansion.
Fed Policy
Fed Bank of Dallas President Richard Fisher speaks today about the economy. He said on Feb. 29 that policy makers “worry less about a double-dip recession.” The U.S. central bank, which will meet March 13, bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from December 2008 to June 2011.
“Good U.S. data makes it less likely that the Fed will do quantitative easing” again, said Alvin Liew, a senior economist at United Overseas Bank Ltd. (UOB) in Singapore. “That would keep the dollar fairly well supported, at least in the near term.”
The dollar has strengthened 4.4 percent in the past six months, while the euro has lost 2.8 percent, according to Bloomberg Correlation-Weighted Indexes that track 10 developed- market currencies. The yen dropped 3.5 percent.
Futures traders are betting for the first time since May that the yen will fall against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 1,203 on Feb. 28, compared with net longs of 17,257 a week earlier.
Australia’s dollar fell for a second day against the greenback on concern slower growth in China’s economy will decrease demand for the South Pacific nation’s commodities.
China’s lower-growth goal is “spurring concerns about economic slowdown and a decline in commodity demand,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “That could weigh on commodity currencies” such as the Australian dollar.
Australia’s currency fell 0.5 percent to $1.0678 after sliding 0.7 percent on March 2.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
