Yen Nears Two-Week Low as Recovery Optimism Curbs Safety Demand

Oct. 13 (Bloomberg) -- The yen traded near a two-week low against the euro as optimism the global economic recovery is on track curbed demand for safe-haven currencies.

The yen dropped against 12 of its 16 major counterparts as Asian stocks extended a global rally amid speculation corporate earnings are recovering. The New Zealand dollar rose as a government report showed the South Pacific nation’s retail sales gained in August by the most since 2007.

“Risk appetite will stay underpinned in the near term,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “People are anticipating strong corporate earnings this week. That will support the market and help the yen weaken.”

The yen was at 132.71 per euro at 11:38 a.m. in Tokyo from 132.72 in New York yesterday, when it touched 133.32, the weakest level since Sept. 25. Japan’s currency traded at 89.84 per dollar from 89.82. The dollar was at $1.4773 per euro from $1.4773 in New York yesterday.

Japan’s Nikkei 225 Stock Average rose for a fifth day and the MSCI Asia Pacific Index of regional shares advanced 0.4 percent.

The Standard & Poor’s 500 Index rose to a one-year high in New York yesterday after Black & Decker Corp. raised its third- quarter profit forecast and Ford Motor Co. said European sales climbed 12 percent last month.

‘Earnings Surprises’

“Any repeat of the broadly positive earnings surprises seen in Q2 is likely to lead to further gains for commodity currencies at the expense of the U.S. dollar,” Gareth Berry, a currency strategist in Singapore at UBS AG, wrote in a report.

The European Union’s statistics office in Luxembourg is forecast to report industrial production in the 16 nations that use the euro gained 1.2 percent in August after dropping 0.3 percent in July, according to the median estimate of 32 economists in a Bloomberg News survey. The data is due tomorrow.

“There’s a sense that the euro-zone’s economy is doing better than the U.S.’s,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France’s third- largest bank. “The euro will likely strengthen further.”

The New Zealand dollar advanced against all 16 major counterparts as the nation’s retail sales gained 1.1 percent in August after dropping 0.5 percent in July. Economists projected a 0.5 percent gain. Reserve Bank of New Zealand Governor Alan Bollard on Sept. 10 said he doesn’t plan to raise benchmark interest rates until the “latter part” of 2010.

New Zealand Rates

“The market will continue to push for a January or March start to the tightening cycle,” said Khoon Goh, senior economist at ANZ National Bank Ltd. in Wellington. “The currency market will be driven by what’s going on overseas, particularly ongoing weakness in the U.S. dollar.”

The New Zealand dollar advanced 0.4 percent to 73.63 U.S. cents from 73.33 cents. Australia’s currency was little changed at 90.69 U.S. cents. It earlier touched 90.95 cents, the strongest since August 2008.

Australia last week became the first among Group of 20 economies to raise borrowing costs since the beginning of the financial crisis. Futures markets show a more than 90 percent chance that the Reserve Bank of Australia will raise rates to 3.75 percent by year-end.

Benchmark interest rates of 3.25 percent in Australia and 2.5 percent in New Zealand compares with as low as zero in the U.S., making the South Pacific nations’ assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves will erase profits.