Oct. 20 (Bloomberg) -- The euro climbed toward $1.50 on optimism the global economic recovery is gathering momentum. Australia’s dollar touched a 14-month high after its central bank said “very low” interest rates were no longer necessary.
The euro rallied to the strongest level since August 2008 against the dollar before reports this week that economists said will show the U.S. housing market and German business confidence improved, boosting demand higher-yielding assets. The yen rose against 15 of its 16 major counterparts after Japanese Finance Minister Hirohisa Fujii repeated his reluctance to intervene in the foreign-exchange market to halt the currency’s gains.
“A mood of euphoria is at work as prospects improve for corporate profits and the economy,” said Mitsuru Saito, Tokyo- based chief economist at Tokai Tokyo Securities Co. “Given also the likelihood that the Federal Reserve will maintain its accommodative monetary stance, riskier assets will continue to fare well at the expense of funding currencies.”
The euro rose to $1.4971 as of 6:44 a.m. in London from $1.4965 in New York yesterday. It earlier touched $1.4994, the strongest since August 2008. The yen climbed to 90.14 per dollar from 90.55, and advanced to 134.96 per euro from 135.51.
Australia’s currency climbed to 93.11 cents, the highest since August 2008, before trading at 92.78 U.S. cents from 92.92 cents yesterday. New Zealand’s dollar was at 75.30 U.S. cents from 75.67 cents, after touching 75.76 cents, the strongest since July 2008.
‘Possibly Imprudent’
A “very expansionary setting of policy was no longer necessary, and possibly imprudent,” Reserve Bank of Australia officials said in minutes of their Oct. 6 meeting released today in Sydney. The risks in waiting to raise borrowing costs “had increased,” policy makers said.
Central bank Governor Glenn Stevens and his board raised the benchmark rate by a quarter percentage point to 3.25 percent at the meeting and signaled they may raise rates again as soon as next month.
Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. make the yen and dollar favorite funding currencies for so-called carry trades, in which investors borrow where interest rates are relatively low and buy assets in nations where returns are higher. The risk in such trades is that currency-market moves can erase profits.
The dollar slid as Asian stocks extended a global equity rally, sapping demand for the U.S. currency as a shelter from recession. The MSCI Asia Pacific Index gained 1.1 percent after the Dow Jones Industrial Average climbed 1 percent yesterday.
Corporate Earnings
Analysts surveyed by Bloomberg estimate profits for companies in the Standard & Poor’s 500 Index will rise 65 percent in the last three months of the year after falling for nine quarters, the longest streak since the Great Depression.
Earnings at U.S. companies will probably exceed analysts’ third-quarter estimates, extending a rally in stocks to year-end, Nomura Holdings Inc. wrote in a note dated Oct. 16. Thirty-four of the 41 companies in the S&P 500 that reported since Oct. 7 surpassed analysts’ projections, according to Bloomberg data.
U.S. housing starts rose to an annual rate of 610,000 in September from 598,000 in August, according to a Bloomberg News survey of economists before the Commerce Department report today.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 the previous month, according to a separate survey. The Munich- based institute will release the report Oct. 23.
Fed Signals
Demand for the dollar also weakened after the Federal Reserve signaled in a statement yesterday that it will keep borrowing costs down while assessing ways to drain money from the banking system.
The Fed said it’s working with market participants to assess the use of reverse repurchase agreements to withdraw some of the record amounts of cash it added to the financial system.
“This work is a matter of prudent advance planning by the Federal Reserve, and no inference should be drawn about the timing of monetary-policy tightening,” the statement said.
Gains in the euro were limited on speculation the 16-nation region’s finance ministers will reiterate concern about the currency’s recent strength at a two-day meeting ending today.
Luxembourg Treasury Minister Jean-Claude Juncker, who is leading the meeting, said yesterday the ministers “discussed exchange rates extensively,” adding that “it’s a problem which worries us.” Juncker and European Central Bank President Jean- Claude Trichet will travel to China with European Union Monetary Affairs Commissioner Joaquin Almunia before the end of the year to discuss currencies, Juncker said.
‘Too Strong’
“Policy makers may express worries that the euro is too strong, especially against China’s renminbi,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “Further euro appreciation will likely hurt the euro- zone’s exports more.”
The euro has gained 16 percent against the dollar and the renminbi in the past six months, making the region’s exports more expensive to overseas buyers and threatening the recovery from the worst recession since World War II.
The yen rose after finance minister Fujii said the devaluation of currencies can hurt the global economy. The recent strength in the currency is due to the weaker dollar, stemming from an accommodative monetary policy, Fujii said today in Tokyo.
Japan’s currency also advanced as exporters bought it to hedge sales generated outside the country, according to Yuki Sakasai, a Tokyo-based foreign exchange strategist at Barclays Bank Plc.
“The yen benefited from exporters’ selling of the currencies of its counterparts, but the underlying bias for the yen to weaken remains intact, given the emerging optimism,” Sakasai said.
Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: October 20, 2009 01:47 EDT
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment