Dollar Trades Near Three-Month High Amid U.S. Recovery Signs

Dec. 23 (Bloomberg) -- The dollar traded near the highest in more than three months versus the euro before a report forecast to show new home sales rose in the U.S., adding to signs of recovery in the world’s largest economy.

The dollar was near an eight-week high against the yen as the yield on U.S. 10-year notes rose, boosting the advantage of holding Treasuries instead of Japanese debt to the widest margin in more than a year. New Zealand’s dollar fell after a government report showed the economy expanded 0.2 percent in the third quarter, half the pace forecast by economists.

“The U.S. dollar continues to benefit from stronger data,” said Robert Rennie, head of currency research in Sydney at Westpac Banking Corp. “That is a trend we generally expect to continue.”

The dollar traded at $1.4256 versus the euro as of 9:19 a.m. in Tokyo from $1.4249 in New York yesterday, when it touched $1.4218, the highest since Sept. 4. The dollar fetched 91.79 yen from 91.83 yen. It earlier reached 91.87 yen, the strongest since Oct. 27. The yen was unchanged at 130.86 per euro. Japan’s markets are closed today for a public holiday.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies including the euro and yen, rose yesterday to as high as 78.449, the most since Sept. 4.

The difference between 10-year Treasury yields and the same maturity Japanese government bonds widened to 2.49 percentage points yesterday, the highest level since October 2008.

U.S. Data

Sales of new homes in the U.S. probably rose to a 438,000 annual pace in November from 430,000 in October, according to the median estimate of economists in a Bloomberg News survey. The Commerce Department will release the data today.

Purchases of U.S. existing homes increased 7.4 percent in November to a 6.54 million annual rate, the highest since February 2007, the National Association of Realtors said yesterday. The median estimate of 69 economists in a Bloomberg survey was for a 2.5 percent advance.

“The U.S. economy is chugging along in its recovery mode, punching out some decent figures,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Sydney. “Markets are re-rating some of the major currencies, particularly the euro and yen. The dollar has more to offer from these levels than those currencies do, considering the problems surrounding the periphery in Europe.”

Dollar Correlation

Greece’s government debt rating was cut yesterday one step to A2 from A1 by Moody’s Investors Service, less than some strategists expected. Moody’s kept a negative outlook on the rating.

Gains in the dollar were limited as the euro-dollar’s 14- day relative strength index, or RSI, has remained below 30 since Dec. 17, a sign that the dollar is likely to fall after rising too fast. The index was at 25.43 today.

“Technical indicators show the dollar’s rise has been rapid, as investors unwind numerous dollar-short positions before Christmas,” said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. “I’m guessing the market will switch back to a dollar-weakening trend early next year.”

Canada’s Finance Minister Jim Flaherty said China, with the world’s largest currency reserves of $2.3 trillion, may purchase Canadian dollars as it tries to shield its reserves against the U.S. dollar’s depreciation.

“It does not surprise me that China and Russia would take greater positions in the Canadian dollar than they have previously,” Flaherty said yesterday in an interview in Ottawa. “I would expect countries looking around the world to invest in market currencies that are reliable.”

New Zealand Economy

New Zealand’s dollar dropped as the nation’s economy grew 0.2 percent in the third quarter, compared with the 0.4 percent forecast by economists in a Bloomberg survey.

“The lower than expected GDP number has weakened the currency,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. “We’re looking at 69.03 cents on the kiwi,” he said, using the currency’s nickname.

The New Zealand dollar was little changed at 69.95 U.S. cents after dropping to as low as 69.75 cents. It bought 64.20 yen from 64.23.