Yen Falls as Goldman Sachs’s Earnings Spur Higher-Yield Demand

By Oliver Biggadike and Ye Xie

July 14 (Bloomberg) -- The yen fell against higher-yielding currencies including the Australian and Canadian dollars as Goldman Sachs Group Inc.’s earnings beat analysts’ forecasts and U.S. retail sales rose last month.
Japan’s currency fluctuated versus the euro and dollar after dropping yesterday in anticipation that Goldman Sachs’s earnings would signal that the worst is over for a financial industry that has run up almost $1.5 trillion in writedowns and losses since the start of 2007.

“The market’s hesitant because we’ve got more results out there and Goldman was one of the stronger companies,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “Things are better. It doesn’t mean we’re out of the woods, but things are in a better state.”
The yen traded at 129.47 per euro at 10:44 a.m. in New York, compared with 129.95 yesterday. The yen gained 0.1 percent to 92.86 per dollar from 92.97. The euro was at $1.3957, compared with $1.3978. The yen lost 0.3 percent to 73.02 against the Australian dollar and weakened 0.6 percent to 81.26 versus the Canadian currency.

Goldman Sachs, JPMorgan Chase & Co. and International Business Machines Corp. are among more than 30 companies in the S&P 500 Index due to report results this week. Johnson & Johnson, the world’s largest seller of health-care products, reported second-quarter net income above analysts’ forecasts.

U.S. Retail Sales 

U.S. retail sales increased 0.6 percent last month after a 0.5 percent gain in May, the Commerce Department reported today. The median forecast of 74 economists surveyed by Bloomberg News was for a 0.4 percent advance.
Treasury Secretary Timothy Geithner said in remarks in Jeddah, Saudi Arabia, that his government’s policies and those of the Federal Reserve are consistent with a “strong dollar.” He said he’s “very committed” to cutting the budget deficit.

The euro earlier erased its gain versus the yen after the ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations decreased this month to 39.5. The median forecast of 36 economists surveyed by Bloomberg News was for an increase to 47.8.
Any declines in the euro against the dollar will probably be limited to $1.3750 as the 16-nation currency “consolidates” before moving higher, according to Andrew Chaveriat, a technical strategist at BNP Paribas SA in New York. The euro needs to close above $1.4202 before advancing to its June high of about $1.4340, he predicted.

‘Chasing the Market’ 

“People have been burnt chasing the market higher,” Chaveriat said in an interview. “The medium-term players are just stepping aside, and the market can be fickle because some of the short-term day traders and short-term swing traders have a larger influence.”
One-month implied volatility in the euro-dollar fell to 11.80 percent today, the lowest level since September, when Lehman Brothers Holdings Inc. filed for bankruptcy. A decline in implied volatility indicates traders expect smaller swings in the exchange rate in the future, and make options to buy or sell the currency cheaper.
The New Zealand dollar rose for a second day against the yen, advancing 0.1 percent to 58.84 after Reserve Bank Governor Alan Bollard said the nation’s economy is likely to start recovering earlier than that of many of its trading partners.

“We hope that in the next phase of recovery in financial- market sentiment and return to risk seeking, the markets will be more discriminating about New Zealand,” Bollard said in notes for a speech delivered today in Napier.

Australian Sentiment 

Australia’s business sentiment index rose 6 points to 4 in June after holding below zero for the previous 17 months, according to a National Australia Bank Ltd. survey released in Sydney today. A figure above zero shows optimists outnumber pessimists.

Benchmark interest rates are 2.5 percent in New Zealand and 3 percent in Australia, compared with as low as zero in the U.S. and 0.1 percent in Japan, encouraging investors to buy the South Pacific nations’ assets. The risk in such trades is that currency moves can erase profits.

Sterling gained 0.2 percent to $1.6264 and advanced 0.4 percent to 85.79 pence per euro after the Royal Institution of Chartered Surveyors said London real-estate agents and surveyors said home values increased in June rather than fell for the first time in 20 months.

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: July 14, 2009 10:54 EDT