Dollar Heads for 2nd Weekly Loss on Signs U.S. Recovery Slowing

Jan. 15 (Bloomberg) -- The dollar headed for a second weekly decline against the euro and the yen on speculation the Federal Reserve will keep interest rates near zero to aid the U.S. economic recovery.

The greenback was poised for a loss this week against 14 of the 16 major currencies before a U.S. report that economists said will show industrial production climbed at a slower pace last month and after the Commerce Department yesterday said retail sales unexpectedly contracted. Australia’s dollar was near a two-month high versus the U.S. currency as traders this week boosted bets the central bank will increase interest rates.

“Weak retail sales will weigh on the dollar,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “Fed officials are waiting to see the impact of their stimulus measures on the economy.”

The dollar traded at 91.28 yen as of 9:01 a.m. in Tokyo from 91.21 yen in New York yesterday, heading for 1.5 percent loss this week. The U.S. currency was at $1.4500 per euro from $1.449 yesterday, having slid 0.6 percent in the past five days. The yen was at 132.27 per euro from 132.25 yesterday.

U.S. factory output rose 0.6 percent in December after gaining 0.8 percent in November, according to a Bloomberg News survey before today’s report. Retail sales fell 0.3 percent in December, the Commerce Department said yesterday. The median forecast of economists surveyed by Bloomberg was for a 0.5 percent increase.

Stimulus Measures

Fed officials debated at the Dec. 15-16 meeting increasing and extending their stimulus program should the economy weaken, according to minutes of the meeting released Jan. 6. A few favored such a move while one discussed a reduction.

Australia’s dollar headed for a third weekly gain versus the greenback on speculation the Reserve Bank will raise its benchmark rate at its next meeting on Feb. 2 after a report yesterday showed the nation added jobs for a fourth month.

“The gap between interest rates in Australia and the U.S. is likely to widen for quite some time, making it attractive for investors to park funds in Australia,” said Amanda Tan, an economist at St. George Bank Ltd. in Sydney. “That should provide support to the currency for at least the next six months before the chances of major economies raising their rates become more real.”

The RBA’s key rate of 3.75 percent compares with 0.1 percent in Japan and as low as zero in the U.S., making Australian assets relatively more attractive. Traders boosted bets the RBA will increase rates at its next meeting to 71 percent today, from 62 percent odds at the end of last week, according to an index compiled by Credit Suisse Group AG.

Australia’s currency was at 93.06 U.S. cents from 93.18 cents yesterday, when it touched an eight-week high of 93.28. The so-called Aussie has strengthened 0.7 percent this week.