Wednesday, September 16, 2009

Dollar Nears 2009 Low Against Euro on Optimism Recession Easing

Sept. 16 (Bloomberg) -- The dollar traded near the weakest level this year against the euro before a report forecast to show U.S. manufacturers boosted output, reducing demand for the relative safety of the greenback.

The Australian and New Zealand currencies were near this year’s highs against the dollar as Asian stocks extended a global equity rally after the biggest gain in U.S. retail sales for three years encouraged investors to buy riskier assets. Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended and billionaire investor Warren Buffett said his company is buying equities.

“Higher-yielding currencies and riskier assets are in demand as risk appetite returns,” said Masashi Hashimoto, senior foreign exchange analyst at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan’s biggest banking group. “Funding currencies like the yen and dollar will weaken.”

The dollar dropped to $1.4679 per euro as of 9:28 a.m. in Tokyo from $1.4658 yesterday in New York, when it reached $1.4686, the highest since Dec. 18. Japan’s currency traded at 133.35 per euro from 133.47 yesterday in New York. It was at 90.83 per dollar from 91.05 yen.

Australia’s currency bought 86.51 U.S. cents, close to its strongest since August 2008, from 86.34 cents yesterday in New York. New Zealand’s dollar fetched 70.63 U.S. cents from 70.50 cents, near its highest since August 2008.

Benchmark interest rates of 3 percent in Australia and 2.5 percent in New Zealand attract investors who invest in the countries’ assets using loans from nations with lower costs such as the 0.1 percent benchmark in Japan and the U.S. rate which is as low as zero. The risk in such carry trades is that exchange- rate changes can erase profits.

Retail Sales

The Dollar Index traded near the lowest in one year after a Commerce Department report showed U.S. retail sales increased 2.7 percent last month after a revised 0.2 percent drop in July, adding to signs the recession is ending.

The Federal Reserve Board’s measure of U.S. production, due for release today, probably rose 0.6 percent, the most since October, according to a Bloomberg News survey of economists. The report may also show the proportion of plant capacity in use climbed to 69 percent, the highest in five months.

The Nikkei 225 Stock Averaged gained 0.8 percent and the MSCI Asia Pacific Index of regional shares advanced 1.1 percent.

Buffett Buying Stocks

Berkshire Hathaway Inc. is “buying stocks right as we speak,” Buffett told a conference in California, adding that he’s getting a “lot for my money” in equities.

The Dollar Index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 76.411 from 76.520 yesterday. It earlier hit 76.406, the lowest level since September 2008.

The yen rose for the first time in three days against the dollar on speculation foreign investors may shift their focus to Japanese assets from the rest of Asia.

“The Japanese stock market, which has lagged behind the recent bull-run of the regional market, is gradually catching up thanks to buying by foreign investors,” said Takao Yahata, senior manager of foreign exchange and financial-products trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest banking group. “This capital inflow into Japan buoys the yen.”

Foreign investors bought 180.8 billion yen ($2 billion) in Japanese bonds and 132.4 billion yen in stocks, and sold 26.3 billion yen in short-term securities during the week ended Sept. 5, according to figures based on reports from designated major investors released by the Ministry of Finance in Tokyo.

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