Dollar Slips Beyond $1.36 per Euro for First Time Since March

By Oliver Biggadike and Ye Xie

May 8 (Bloomberg) -- The dollar declined to a six-week low against the euro as a government report showed U.S. employers cut fewer jobs last month than economists forecast, reducing demand for relative safety.

Canada’s currency advanced to the highest level versus the greenback since November on the nation’s unexpected addition of jobs in April. The yen slid versus all but two of the 16 most actively traded currencies tracked by Bloomberg and touched a seven-month low against Australia’s dollar this week as evidence the recession is easing spurred demand for higher yields.

“The prevailing flow now is negative for the dollar, negative for the yen, positive for the commodity-linked currencies and higher yielders,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York. “Right now, the report is given a positive spin by the market. The market is grabbing on the green-shoot rally.”

The dollar lost as much as 1.8 percent to $1.3633 versus the euro, the weakest level since March 26, before trading at $1.3633 at 4:20 p.m. in New York. It was the biggest intraday decrease since April 2. The U.S. currency dropped 0.7 percent to 98.44 yen, from 99.12. The euro increased 1.1 percent to 134.20 yen, from 132.71.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, dropped 1.7 percent today, the biggest decrease since March 19, the day after the Federal Reserve announced its plan to buy as much as $300 billion in Treasuries. The index touched the lowest level since Jan. 9.

‘Dollar Weakness’

The euro-dollar exchange rate rose above its 200-day moving average for the first time since December, signaling “significant dollar weakness,” said Tom Fitzpatrick, chief technical analyst at Citigroup Inc. in New York.

“The dollar is going to get hit and hit hard in the months ahead,” Fitzpatrick and Shyam Devani, a London-based strategist at the firm, wrote in a note to clients today.

The U.S. dollar will remain the world’s reserve currency “for some time,” China’s ambassador to the United States, Zhou Wenzhong, said in a speech in Chicago today, Reuters reported. Suggestions that the dollar could be superseded by a global basket of currencies is “kind of a scholarly exploration for the future,” Reuters cited Zhou as saying.

China’s central bank governor, Zhou Xiaochuan, called for the establishment of a “super-sovereign reserve currency” in March, while Premier Wen Jiabao said he’s “worried” a weaker U.S. dollar may hurt China’s investments. China is the largest holder of U.S. Treasuries.

Weaker Yen

The yen dropped 4.9 percent to 59.43 versus the New Zealand dollar and 4.4 percent to 75.76 against the Australian dollar this week as a more optimistic global economic outlook prompted investors to get funds in countries with low borrowing costs and buy assets where returns are higher. The Bank of Japan’s target lending rate of 0.1 percent compares with 3 percent in Australia and 2.5 percent in New Zealand.

Japan’s currency fell today to 75.91, the weakest level against the Aussie since Oct. 6, and reached 59.56 against the kiwi, the weakest since April 6.

Global stocks advanced on the U.S. jobs report, with the Standard & Poor’s 500 Index gaining 2.4 percent. Treasuries rose, pushing the 10-year note’s yield down after reaching 3.37 percent earlier, the highest level since November.

U.S. companies eliminated 539,000 jobs in April after a revised decrease of 699,000 in the previous month, the Labor Department reported today in Washington. The median forecast of 70 economists surveyed by Bloomberg was for a drop of 600,000. The unemployment rate increased to 8.9 percent.

‘Things Are Improving’

“Things are improving a little bit faster than people were expecting,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “People have been so bearish on the euro in general. Indeed, what we’re seeing is euro-dollar breaking higher, and our recommendation is to buy the euro.” The euro may rise to $1.40 in two weeks, he said.

The dollar posted a third weekly decline versus the euro, dropping 2.6 percent in the longest losing streak this year. Against the yen, the dollar decreased 0.7 percent, while the euro rose 2 percent.

The Canadian dollar increased as much as 1.8 percent to C$1.1491, the strongest level since Nov. 5, on the Canadian labor report. The currency was 3 percent higher this week, its sixth straight weekly gain.

Employers in Canada added a net 35,900 workers in April after a reduction of 61,300 in the previous month, Statistics Canada said today in Ottawa. The median forecast of 24 economists surveyed by Bloomberg was for a drop of 50,000.

Australia’s Dollar

Australia’s dollar recorded its 10th weekly advance against the greenback, finishing at 76.83 U.S. cents in the longest winning streak since 2003. Reports this week showing an expansion in Chinese manufacturing and an increase in car sales stoked optimism the global recession is abating.

“China right now is a barometer for the economy,” said Jessica Hoversen, a foreign-exchange analyst at MF Global Ltd. in Chicago. “As long as the idea continues that the Chinese economy will be this Atlas in the global recovery, then you’re going to see tailwinds underpin the Aussie.”

The Australian dollar may rise in the next two weeks to 78 U.S. cents, a level where the currency’s plunge paused in September, Hoversen said. Atlas was the giant in Greek mythology who was condemned to hold up the sky on his shoulders.

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

Last Updated: May 8, 2009 16:29 EDT