By Ron Harui
The yen may gain for a second day versus the Australian and New Zealand dollars on the prospect investors will sell higher- yielding assets after Treasury Secretary Timothy Geithner pledged financing for as much as $2 trillion without providing details on how he will help banks cope with toxic assets. The euro also fell before a report tomorrow that may show European industrial production fell the most in almost 23 years.
“The plan is not the quick fix investors were hoping for, so there’s obvious disappointment,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Risk aversion will probably spur them to seek the relative safety of the dollar and the yen in the near term.”
The dollar rose to $1.2863 per euro as of 9:28 a.m. in Singapore, after gaining 0.7 percent yesterday. The yen climbed to 116.28 per euro after appreciating 1.8 percent, the first advance in four days. Japan’s currency traded at 90.38 per dollar from 90.47. Trading may be subdued today because of a public holiday in Japan, Hampton said.
The yen advanced 3 percent to 59.13 against Australia’s dollar and strengthened 3.1 percent to 47.30 versus New Zealand’s dollar from late in Asia yesterday. Japan’s benchmark interest rate of 0.1 percent compares with 3.25 percent in Australia and 3.50 percent in New Zealand, encouraging investors to borrow in yen and invest in the two nations’ assets.
Asian Stocks Fall
The MSCI Asia-Pacific excluding Japan index fell 2.2 percent today after U.S. stocks slumped yesterday. The Standard & Poor’s 500 Index lost 4.9 percent, the most since President Barack Obama was inaugurated, on concern the government’s bank rescue won’t work.
The Treasury is creating a Public-Private Investment fund, with an initial capacity of $500 billion that may grow to $1 trillion, to provide financing for private investors to buy distressed securities, Geithner said in Washington yesterday.
“A number of currencies have benefited in recent days from anticipation that a bad bank structure would put a floor under U.S. asset prices,” Daniel Katzive, a senior currency strategist in New York at Credit Suisse Group, wrote in a research note yesterday. “A primary beneficiary of bad bank anticipation has been the British pound, and the lack of a convincing plan at this time should result in a reversal of recent pound gains.”
The pound weakened versus 11 of the 16 major currencies today. Sterling declined 0.4 percent to $1.4486, and dropped 0.5 percent to 130.98 yen.
Industrial Output
The U.S. Senate voted 61-37 to approve a separate $838 billion economic stimulus package yesterday, clearing the way for negotiations with the House over a compromise plan lawmakers said they want to send to President Barack Obama quickly.
The euro also declined on speculation industrial output in the 16-nation region dropped by the most since January 1986 when Bloomberg began compiling the data, backing the case for the European Central Bank to cut interest rates.
“We remain of the view that growth conditions will remain in a clear weakening trend,” Ashley Davies, a currency strategist in Singapore at UBS AG, the world’s second-largest foreign-exchange trader, wrote in a research note today. “We remain of the view that the single currency will remain in a broad downtrend, in particular versus the dollar.”
The European Union’s statistics office may say tomorrow that industrial production fell 9.5 percent in December from a year earlier, after a 7.7 percent decline in November, according to a Bloomberg News survey of economists.
Investors added to bets the ECB will lower borrowing costs from 2 percent at its March 5 meeting. The yield on the three- month Euribor interest rate futures contract due in March fell to 1.745 percent yesterday from 1.855 percent a week earlier.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: February 10, 2009 20:39 EST
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