By Ye Xie
June 10 (Bloomberg) -- The dollar declined versus several of its major counterparts as speculation the global recession is easing reduced demand for a refuge and after Russia said it will pare holdings of Treasuries.
The New Zealand and Australian dollars rose against the U.S. and Japanese currencies on bets a gain in stocks will spur buying of higher-yielding assets. The pound advanced versus the dollar for a third day as a report showed U.K. manufacturing expanded in April for a second month.
“The dollar-bearish sentiment is already in place,” said Jonathan Gencher, director of foreign-exchange sales at Bank of Montreal in Toronto. “The Russian news had some impact. It’s just another nail in the coffin.”
The dollar depreciated 0.4 percent to $1.6365 versus the pound at 10:06 a.m. in New York, from $1.6305 yesterday. The U.S. currency increased 0.4 percent to $1.4004 from $1.4065. The yen slid 0.4 percent to 137.46 per euro from 136.98 and declined 0.8 percent to 98.15 per dollar from 97.38.
Treasuries fell, pushing the yield on the benchmark 10-year note up as much as 0.07 percentage point to 3.92 percent, the highest level since November.
Russia’s central bank may switch some of its reserves from Treasuries to International Monetary Fund bonds, the bank’s first deputy chairman, Alexei Ulyukayev, said in Moscow today. His comments were confirmed by a bank official who declined to be named, citing bank policy.
Finance Minister Alexei Kudrin said last month that Russia planned to buy $10 billion of IMF bonds using money from its foreign reserves.
“There’s a lot of talk of central banks diversifying away from dollars,” said David Bradley, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit of Canada’s third-largest bank. “A lot of the reason why the dollar will decline longer-term is based on that.”
The dollar dropped 6.6 percent versus the euro in May, the biggest monthly drop this year, on speculation the quadrupling of the U.S. budget deficit and the Federal Reserve’s increase of the money supply will undermine the U.S. currency.
“We do need to be concerned about a dollar collapse,” Alan Ruskin, head of international currency strategy in North America at RBS Securities Inc. in Stamford, Connecticut, said in an interview on Bloomberg Radio. “We have to take seriously the idea that the U.S. is at the point of currency debasement.”
The Fed’s holdings of Treasuries on behalf of central banks and institutions from China to Norway rose by $68.8 billion, or 3.3 percent, in May, the third most on record, data compiled by Bloomberg show. The Treasury said bidding from foreigners was above average at its $101 billion of note auctions in the week ended May 29.
Brazil, Russia, India and China increased foreign reserve by more than $60 billion last month to limit currency gains as the first global recession since World War II restricted exports, data compiled by central banks and strategists show. Russia added the most foreign exchange since July.
The New Zealand dollar rose 0.9 percent to 63.26 U.S. cents and the Australian dollar appreciated 1.5 percent to 79.23 yen on bets improving global economic prospects will spur demand for higher-yielding assets.
Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and 0.1 percent in Japan.
The Standard & Poor’s 500 Index increased 0.6 percent, while the Dow Jones Stoxx 600 Index of European shares rose 2 percent, the biggest gain since June 1. Crude oil rose to a seven-month high above $71 a barrel.
U.S. retail sales increased in May for the first time in three months, according to the median forecast of 74 economists surveyed by Bloomberg News. The report from the Commerce Department is due tomorrow.
“When optimism about the global economy is out there, people feel less need to hold the dollars which they have accumulated for a rainy day,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of France’s third-largest bank. “The dollar is likely to remain under pressure.”
Australia’s dollar also advanced 1.1 percent to 81.02 U.S. cents as an industry report showed consumer confidence jumped in June, adding to signs the economy may avoid a recession.
The pound advanced versus the dollar as the Office for National Statistics said U.K. output climbed 0.2 percent in April. Economists predicted a 0.1 percent gain, according to the median of 26 forecasts in a Bloomberg News survey.
The U.S. dollar, which for the past nine months tended to fall amid better economic data, may “flip” as markets associate an improving outlook with a possible tightening of U.S. monetary policy, Bank of America-Merrill Lynch wrote in a report today.
“With the era of ‘risk on, risk off’ soon to be behind us, the credibility of U.S. fiscal and monetary policy will, in our view, increasingly dictate the outlook for the dollar,” Steven Pearson, a foreign-exchange strategist in London, wrote.
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Last Updated: June 10, 2009 10:07 EDT
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