Dollar Falls on Speculation Auto Plan Will Boost Yield Demand

March 27 (Bloomberg) -- The dollar declined against the euro, paring a weekly gain, on speculation President Barack Obama will announce further aid to the U.S. auto industry, reducing demand for the U.S. currency as a refuge.

The yen gained the most in a week against the greenback on speculation domestic companies are bringing home overseas earnings before the end of the fiscal year on March 31. The Australian and New Zealand dollars were poised for the biggest monthly gain versus the greenback in more than 20 years as stocks extended a worldwide rally to a third week and prices jumped for the commodities the two nations export.

“There are emerging expectations that the U.S. auto industry, which has been living on the edge, can avoid a hard- landing,” said Kengo Suzuki, a currency strategist in Tokyo at Shinko Securities Co. “This may further boost stock prices, improve risk-appetite and weaken the dollar.”

The dollar fell to $1.3578 versus the euro as of 7:02 a.m. in London from $1.3526 late yesterday in New York and $1.3580 on March 20. The greenback weakened to 97.80 yen from 98.71 yesterday. Japan’s currency also rose to 132.83 per euro from 133.52. The dollar traded at $1.4463 per pound from $1.4453.

The Australia’s currency was at 69.82 U.S. cents from 70.16 cents yesterday, having gained 9.5 percent in March, the biggest monthly gain since February 1973. New Zealand’s dollar was at 57.44 U.S. cents from 57.55 U.S. cents yesterday, rising 15 percent this month.

Dollar Index

The Dollar Index headed for a third week of losses after Obama said yesterday he will outline his strategy for the automobile industry “in the next few days” and suggested he is open to providing automakers with more aid.

General Motors Corp. and Chrysler LLC are operating with $17.4 billion in U.S. aid and have requested as much as $21.6 billion more. Obama’s auto task force is likely to recommend the government make more money available to carmakers, U.S. Senator Debbie Stabenow, a Michigan Democrat, told reporters.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, declined 0.4 percent today to 83.802.

Demand for the yen was boosted on speculation Japanese companies and investors will repatriate earnings generated outside the nation before the fiscal year ends on March 31.

“It’s quarterly and fiscal year-end, so there’s talk that Japanese life insurers and exporters will need to buy the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is a last-minute kind of thing.”

Weekly Loss

The yen is still headed for a sixth weekly drop against the euro, the longest losing streak in eight months, as stocks rallied on optimism the worst of the global economic slump is over, sapping demand for the currency as a refuge.

Demand for the Japanese and U.S. currencies has also waned as central banks cut interest rates and pumped cash into financial markets, boosting appetite for higher-yielding assets.

“The anxiety about credit risks is now easing thanks to aggressive policy action,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of the French asset management firm that supervises the equivalent of $338 billion. “Prospects for stock markets have improved, allowing investors to reinvest in higher-yielding currencies, which were sold in times of crisis.”

The Nikkei 225 Stock Average gained 8.6 percent this week, the most in five months, after the Standard & Poor’s 500 Index advanced 2.3 percent yesterday. The Treasury Department announced earlier this week a scheme to fund purchases of as much as $1 trillion in toxic assets from banks.

Consumer Prices

Gains in the yen were tempered after reports today showed consumer prices stalled in February and retail sales dropped the most in seven years.

“Economic conditions are poor and the political situation is shaky,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “These hurt confidence in the yen.”

Prices excluding fresh food were unchanged from a year earlier, the statistics bureau said today in Tokyo. Retail sales declined 5.8 percent, the Trade Ministry said, more than the 3 percent economists predicted.

The Bank of Japan’s Tankan index, which measures confidence among large makers of cars and electronics, slid to minus 55 this quarter from minus 24, the lowest level in more than 30 years, according to a Bloomberg survey before the April 1 report. A negative number means pessimists outnumber optimists.

Quarterly Loss

The yen fell 6.9 percent this month against the euro, heading for its biggest loss since a 10.8 percent decline in December 2000. Japan’s currency also headed for its first quarterly loss against the dollar since June, dropping 7.3 percent as Japan’s export-oriented economy shrank an annualized 12 percent last quarter, the biggest contraction since 1974.

The euro may extend this month’s gains on speculation the European Central Bank won’t cut interest rates to zero and will avoid printing money to buy government bonds, maintaining the allure of the 16-nation region’s assets.

Demand for Europe’s currency may also advance after ECB Governing Council member Ewald Nowotny said the bank’s liquidity-boosting measures are “sufficient” for now, in an interview with Der Standard that will be published today.

“The ECB has indicated it won’t lower rates to zero and won’t adopt quantitative easing,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This makes it easy to buy the euro,’ which may strengthen to $1.3620 and 133.90 yen today, he said.

The ECB’s policy rate is 1.5 percent, compared with and zero to 0.25 percent in the U.S. and 0.1 percent in Japan.