By Ye Xie
May 12 (Bloomberg) -- The dollar slid beyond $1.37 against the euro for the first time since March as evidence the worst of the global economic slump may be over pared demand for safety.
Australia’s and New Zealand’s dollars approached the highest levels this year as China’s investment in factories and property surged more than economists forecast, encouraging investors to buy higher-yielding assets. The pound rose to a four-month high as the U.K.’s housing slump eased and manufacturing shrank at the slowest pace in more than a year.
“The dollar is pressured lower on renewed risk appetite as data starts to show the worst of the recession is behind us,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The collective psyche of the market has shifted. Any pullback in risky trades is met with more bids. More and more investors are looking to getting into the market, rather than getting out of it.”
The U.S. currency declined 0.3 percent to $1.3642 per euro at 10:26 a.m. in New York, from $1.3582 yesterday. It touched $1.3707, the weakest level since March 23. The euro lost 0.6 percent to 131.68 yen from 132.40. The dollar depreciated 0.9 percent to 96.61 yen from 97.48.
Canada’s dollar advanced 0.8 percent to C$1.1577 after crude oil rose above $60 a barrel for the first time in six months. Commodities such as oil and gold account for half of Canada’s export revenue. The Canadian dollar touched C$1.1477 yesterday, the strongest level since Oct. 14.
The Dollar Index, which the ICE uses to track the U.S. currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, fell as low as 82, the weakest level since Jan. 9.
The U.S. currency, which increased 13 percent against the euro and 28 percent against the pound in the past year, will see its rally end in a “currency crisis,” according to Jim Rogers, chairman of Rogers Holdings.
The advance has been driven by investors covering their short sales, Rogers said in an interview on Bloomberg Television in Singapore. A short is a bet a currency will drop.
“We’re going to have a currency crisis, probably this fall or the fall of 2010,” said Rogers. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar.” He said he prefers the euro to the dollar or the pound.
Federal Reserve Chairman Ben S. Bernanke said yesterday in Jekyll Island, Georgia, that policy makers will help keep the U.S. dollar strong by containing inflation and withdraw credit from the financial system in a “timely” way. He reiterated that he’s “certain” the dollar will be the main reserve currency for the “foreseeable future.”
The dollar tumbled a record 3.4 percent versus the euro on March 18, when the Fed announced its plan to buy up to $300 billion in Treasuries to keep interest rates low. The policy known as quantitative easing raised concern policy makers would flood the market with dollars and trigger inflation.
The yield on the 10-year note increased two basis points, or 0.02 percentage point, to 3.19 percent. The yield is 19 basis points higher than where it was when the Fed said it would buy Treasuries.
“Higher long-term bond yields raise the potential for them to keep quantitative easing, which is dollar-negative,” said Ron Leven, executive director at Morgan Stanley in New York. “The market is less concerned about Armageddon. The recovery, normalization, of financial markets has reduced the demand for dollars for financing and safe haven.”
The euro strengthened versus the dollar after European Central Bank President Jean-Claude Trichet said yesterday policy makers see the first signs of an economic recovery. That fueled speculation the central bank will halt cuts in borrowing costs following last week’s reduction in the main refinancing rate to an all-time low of 1 percent.
The yield premium on 10-year German bunds over the comparable Treasury notes widened to 21 basis points from 5 basis points a week earlier, making the U.S. securities less attractive to investors.
“The market is coming out of panic mode and starting to normalize,” said Daniel Katzive, a senior currency strategist at Credit Suisse Group AG in New York. “The
The pound rose 0.6 percent to 89.27 pence per euro and touched $1.5335, the highest level since Jan. 9, on evidence the British economy is past the worst of its slump.
The Office for National Statistics said industrial production dropped in March at the weakest pace in 13 months. The Royal Institution of Chartered Surveyors said the number of real-estate agents and surveyors saying prices fell exceeded in April those reporting gains by the least since January 2008. The British Retail Consortium reported store sales climbed last month from a year earlier.
“The numbers were better than expected, and there’s some relief in the market that things aren’t getting worse,” said Elisabeth Andreew, chief currency strategist at Nordea Bank AB in Copenhagen. “There’s some optimism coming back, leading to pound buying.”
Australia’s dollar gained 1.1 percent to 76.66 U.S. cents and New Zealand’s currency advanced 1.4 percent to 60.33 U.S. cents on a sign of strength in China.
Urban fixed-asset investment in China climbed 30.5 percent in the four months to the end of April from a year earlier, from 28.6 percent in the first three months, the statistics bureau said today in Beijing. Overseas shipments declined 22.6 percent last month from a year earlier, the customs bureau said.
The Aussie touched 77.14, yesterday, the highest level since Oct. 6, while the kiwi reached 61.28, the highest since Nov. 4, as evidence the worst of the global recession may be over spurred investors to buy currencies of commodity producers that stand to benefit from a recovery.
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Last Updated: May 12, 2009 10:30 EDT
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