Dollar Rises as Yosano’s Comments Ease Diversification Concern

June 12 (Bloomberg) -- The dollar advanced against the euro and the yen after Japanese Finance Minister Kaoru Yosano said his nation’s confidence in U.S. debt is “unshakable” and that the currency’s global status is safe.

The Canadian dollar and Norwegian krone declined versus the greenback after crude oil dropped from a seven-month high. The Latvian lats was poised for its best week in more than five years as the Baltic state moved closer to securing International Monetary Fund financing needed to avert bankruptcy.

“They try to provide some verbal support for the dollar; try to make sure the yen doesn’t get too strong because that economy is in quite a lot trouble right now,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, in an interview on Bloomberg Television. “They want to protect the value of the assets they already have in terms of Treasuries. If there’s going to be a move away from the dollar, it’s going to be very gradual, very cautious.”

The dollar strengthened 0.8 percent to $1.3997 per euro at 4:07 p.m. in New York, from $1.4108 yesterday. The U.S. currency rose 0.8 percent to 98.40 yen, from 97.63 yen. The euro was little changed at 137.73 yen, from 137.74 yen.

For the week, the dollar is down 0.3 percent versus the yen and 0.2 percent against the euro. The yen was little changed versus the euro this week.

The Canadian currency dropped 1.5 percent to C$1.1187 per U.S. dollar, heading for a second weekly decline, after crude oil dropped as much as 2.6 percent to $70.80 a barrel. The krone fell 0.3 percent to 6.3396 per U.S. dollar.

Latvian Bailout

Bank of Canada Governor Mark Carney repeated yesterday that he’ll keep interest rates low until the middle of 2010, and that the Canadian dollar’s appreciation could impede growth in the world’s eighth-largest economy. The currency has gained 13 percent over the past three months. Oil is the biggest export of Canada and Norway.

Latvia’s parliament may sign budget-spending cuts required by its 7.5 billion euros ($10.4 billion) international bailout into law as early as June 15, Prime Minister Valdis Dombrovskis said today.

The lats added 1.7 percent this week against the euro, after trading little changed today at 0.697. The currency is pegged to the euro around a 1 percent target mid-point of 0.702804.

The dollar rose against 15 of the 16 most-traded currencies today after Japan’s finance minister signaled that the second- biggest foreign holder of Treasuries will keep purchasing U.S. government securities. China is the largest U.S. creditor. The Brazilian real was the only currency to gain today versus the greenback.

‘Absolutely Unshakable’

“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano said in an interview in Tokyo on June 10 before attending the G-8 meeting of finance ministers in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”

Brazil and Russia joined China this week in saying they would shift some $70 billion of reserves into multicurrency bonds issued by the International Monetary Fund, raising concern central banks are diversifying away from dollars. Leaders of Brazil, Russia, India and China, the so-called BRIC countries, are scheduled to meet on June 16 in Russia to discuss their economies.

A 30-year Treasury auction yesterday showed overseas demand for U.S. government securities remains robust. Indirect bidders, a class of investors that includes foreign central banks, bought 49 percent of the $11 billion in bonds, the biggest percentage since the Treasury reintroduced the 30-year security in 2006.

‘Difficulty of Transitioning’

“You cannot ask for an alternative to the dollar without offering that alternative,” said Daniel Tenengauzer, head of foreign-exchange and emerging-market debt strategy at Bank of America-Merrill Lynch, in New York, in an interview on Bloomberg Television. “They understand the difficulty of transitioning out of the dollar.”

Treasury Secretary Timothy Geithner said in China on June 1 that the U.S. is committed to a strong dollar, while promising to bring down the country’s fiscal deficit. Luxembourg Finance Minister Jean-Claude Juncker, who leads euro-area finance chiefs, said on June 4 a further increase in the euro against the dollar would be unwelcome.

The dollar also pared a weekly decline after the Wall Street Journal reported the Federal Reserve will resist pressure to increase bond purchases, avoiding adding to the supply of the currency.

‘Under Pressure Again’

The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, has lost 9 percent in the past three months amid concern the Fed’s purchase of government bonds will flood the market with dollars.

“The market is cautious, and the dollar regains some ground,” said Ian Stannard, a currency strategy at BNP Paribas SA in London. “The overall move toward improving risk appetite remains in place. With the G-8 meeting out of the way next week, the dollar will come under pressure once again.”

Ten-year note yields reached 4 percent yesterday, the highest since October.

Rising yields are more a reflection of investors’ concern of U.S. fiscal deficit, than an indication of a strong economic recovery, suggesting the dollar may weaken, according to Camilla Sutton, co-head of currency strategy at Scotia Capital Inc. in Toronto.

“We are in the dollar bear camp,” said Sutton. “We are waiting for the new catalyst for the dollar to break out of the range.”