BLBG:Euro Volatility Is Near 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 were “ready to act” to lower interest rates. The extra yield investors demand to hold 10-year Spanish bonds over same- maturity German debt narrowed 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 erased losses after Chinese data showed imports grew more than economists estimated.
“While the risk of an ECB cut remains, the market is still in the wait-and-see mode,” said Takuya Kawabata, an analyst at Gaitame.com Research Institute Ltd., a unit of Japan’s largest currency margin company. “The Portugal auction was good yesterday and periphery yields continue to fall. The euro is being supported as risk aversion eases.”
One-week implied volatility for the euro-dollar exchange rate, based on currency option prices, was at 7.50 percent at 9:18 a.m. London time, after dropping to 7.33 percent yesterday, the lowest since Jan. 10.
The euro gained 0.1 percent to $1.3097. It was little changed at 129.54 yen after earlier dropping as much as 0.4 percent.
New Zealand’s so-called kiwi plunged 0.7 percent to 83.94 U.S. cents and touched 83.60, the lowest since April 1. The yen rose 0.1 percent to 98.85 per dollar, extending a 0.3 percent gain yesterday.
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 News 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 yield difference, or spread, between 10-year Spanish debt and same-maturity bunds fell to 280 basis points, or 2.80 percentage points today, matching the least since August 2011 on a closing basis.
RBNZ Intervention
The RBNZ’s 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, along with its Australian peer, among more than 150 counterparts 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.”
Fibonacci Analysis
The New Zealand dollar could weaken toward 82.84 U.S. cents, the 200-day moving average, according to Bloomberg strategist Mark Cranfield. It would first need to pass through the 38 percent retracement on the Fibonacci chart between this year’s high and low, and confirm the downtrend with a close below 83.87, the 55-day moving average.
Fibonacci analysis theorizes that prices rise or fall by certain percentages after reaching a new high or low.
In China, imports rose 16.8 percent in April from the prior month. That was more than the 13 percent increase expected by economists in a Bloomberg survey. Exports grew 14.7 percent last month. China is the biggest trading partner for both Australia and New Zealand.
The Australian dollar may rise to NZ$1.28, according to Royal Bank of Canada.
“A lot of the negative news is already in the price for the Aussie dollar,” Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong.
The so-called Aussie was little changed at $1.0190, after earlier weakening as much as 0.3 percent. It jumped 0.8 percent to NZ$1.2140, rallying from a more-than three-year low of NZ$1.1958 yesterday.
Swedish Finance Minister Anders Borg warned that the krona’s strength is becoming a concern for the export-oriented economy and called on the central bank to take the currency’s appreciation into consideration.
“The krona could become an issue, particularly from the central bank perspective; there are some good arguments for them to consider how to look at the krona,” Borg said yesterday in an interview in Abuja, Nigeria.
Sweden’s krona was little changed, at 8.5472 per euro and 6.5332 against the dollar.
To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net.
