Dollar Trades Near 7-Month Low Before U.S. Home Sales Report

Aug. 4 (Bloomberg) -- The dollar traded near a seven-month low against the euro as investors sought higher-yielding currencies before a report forecast to show pending U.S. home sales rose for a fifth month.

The Dollar Index was near a 10-month low ahead of the June home sales report and after the Institute for Supply Management said U.S. manufacturing shrank in July at the slowest pace in 11 months, sapping demand for safer assets. The yen was near the lowest in seven weeks versus the euro on speculation a rally in stocks will damp demand for safe-haven currencies.

“There is growing conviction the global economy is on the road to recovery and equity markets are posting strong gains,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Investors feel more comfortable holding riskier growth-sensitive currencies, which is weakening the dollar and the yen.”

The dollar traded at $1.4417 per euro as of 8:30 a.m. in Tokyo from $1.4412 in New York yesterday, when it fell to $1.4445, the lowest level since Dec. 18. The yen bought 137.25 per euro from 137.31. It reached 137.56 yesterday, the weakest since June 15. The yen fetched 95.21 per dollar from 95.26.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners including the euro and the yen, dropped to as low as 77.451 yesterday, the weakest since Sept. 29.

U.S. Reports

U.S. pending home resales probably rose 0.7 percent in June after a 0.1 percent gain in May, based on a Bloomberg News survey of economists. The National Association of Realtors will release the report at 10 a.m. New York time.

The Institute for Supply Management’s factory gauge yesterday rose to an 11-month high of 48.9 in July, according to the Tempe, Arizona, group. Readings below 50 signal contraction.

“We are starting to see the dollar sell-off getting more momentum,” said Paresh Upadhyaya, who helps manage $21 billion in currency assets as a senior vice president at Putnam Investments LLC in Boston. “Risk sentiment is very strong now that the global recovery is under way.”

U.S. equities rallied yesterday, sending the Standard & Poor’s 500 Index above 1,000 for the first time since November, on growing speculation the recession is ending.

Benchmark interest rates of as low as zero in the U.S. and 0.1 percent in Japan compare with 3 percent in Australia and 2.5 percent in New Zealand. Japan’s currency has fallen 2.5 percent against Australia’s dollar and 2.2 percent versus New Zealand’s dollar in the past week on speculation investors sought higher returns in the South Pacific nations’ assets.

Canadian Dollar, Krone

The Canadian dollar and the Norwegian krone, currencies sensitive to changes in raw-material prices, advanced as crude oil traded above $71 a barrel for the first time in a month.

Canada’s currency appreciated as much as 1.2 percent to C$1.0643 per U.S. dollar yesterday, the strongest level since Oct. 2. Norway’s krone touched 6.0069, the strongest since Oct. 3. Commodities account for more than half of exports in Canada, while Norway is the world’s fifth-largest oil producer.

Nouriel Roubini, the New York University economist who predicted the financial crisis, told a mining conference in Australia yesterday that commodities may extend their rally in 2010 as the global recession abates.

“Commodity currencies seem to be back with a vengeance,” said Jack Iles, who oversees $2.5 billion assets at MFC Global Investment Management in Boston. “The dollar is getting pounded.” Iles said he bought the euro and the Australian dollar versus the greenback a few weeks ago.