By Oliver Biggadike and Ye Xie
New Zealand’s currency was one of the biggest winners among 16 counterparts measured against the yen and dollar as investors were lured to a three-month deposit rate almost 10 times higher than in the U.S. So-called carry trades funded with equal amounts of dollars and yen gained 1.3 percent this week, according to data compiled by Bloomberg.
“We are in an environment that is constructive for growth,” said Lauren Rosborough, a currency strategist in London at Westpac Banking Corp. “It is positive for high- yielding, high-beta currencies. We are seeing evidence that cash is moving out of banks.”
The dollar slid 0.5 percent to $1.4729 per euro at 4:04 p.m. in New York, from $1.4658 yesterday. It reached $1.4737, the weakest level since Sept. 25, 2008. The yen dropped 0.2 percent to 133.72 per euro, from 133.47. Japan’s currency added 0.3 percent to 90.79 per dollar, from 91.05, after appreciating to 90.13, the strongest level since Feb. 12.
The euro gained versus the dollar as traders succeeded in pushing the currency past $1.4720, a technical level just above the Dec. 18 high.
The New Zealand dollar, one of 10 currencies offering the highest three-month deposit rates in the Bank for International Settlements’ triennial survey of currency volume, climbed as much as 1.5 percent to 71.53 U.S. cents, the highest level since August 2008, and 1.3 percent to 65.05 yen.
Deposit Rates
Three-month deposits in New Zealand earn 2.73 percent, compared with 0.28 percent in the U.S. and 0.38 percent in Japan. Australia’s currency, which pays 2.93 percent over the same period, increased as much as 1.3 percent to 87.49 U.S. cents, the strongest in more than a year.
“The dollar is on its back heels,” said Brian Dolan, chief currency strategist at FOREX.com, a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “Until we get a setback in the risk markets, the dollar looks to remain under pressure.”
Output at U.S. factories, mines and utilities climbed 0.8 percent last month, exceeding the median estimate of economists surveyed by Bloomberg News, data from the Federal Reserve in Washington showed. The Labor Department said the cost of living climbed 0.4 percent, and was down 1.5 percent from August 2008.
Gain in Stocks
The Standard & Poor’s 500 Index increased 1.5 percent, and the VIX, the benchmark index for U.S. stock options, slid to its lowest intraday level in a year as investors paid less for protection against declines in equities.
The Dollar Index, which tracks the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell as much as 0.5 percent to 76.172, the lowest level since Sept. 23, 2008. The gauge dropped 15 percent from its 2009 high of 89.624 reached in March.
“The trend is for continued improvement in risk appetite,” said Michael Woolfolk, a managing director in New York at BNY Mellon, the world’s largest custodial bank, with more than $23 trillion in assets under administration. “The dollar remains under pressure.”
The dollar’s value versus the yen fluctuated, increasing as 10-year U.S. Treasury yields rose and falling as the note’s prices advanced. Price and yield move in opposite directions.
‘Absolutely Clobbered’
“Fixed-income markets have been absolutely clobbered, increasing the rate differential,” said MacNeil Curry, a technical analyst at Barclays Plc in New York. “The big thing you want to watch is 10-year rates. If we can get above 3.54 percent and hold the push, the argument’s going to be quite strong for dollar-yen to push higher.”
The 10-year Treasury note’s yield rose as high as 3.50 percent, the most since Sept. 10, before ending the day little changed at 3.46 percent. The dollar bought as much as 91.37 yen, a 0.4 percent gain, before changing hands at about 91.
The difference between U.S. 2- and 10-year note yields was 2.48 percentage points, more than double the 1.11 percentage point difference between comparable Japanese securities.
The yen rose against the dollar through the morning in New York after Japan’s incoming Finance Minister Hirohisa Fujii, 77, told reporters in Tokyo that recent currency movements “aren’t excessive.” Asked if he’s opposed to intervention, he said, “In principle, yes. Such actions can destroy a free economy.”
Japan hasn’t entered the foreign-exchange market since the central bank, at the request of the Finance Ministry, sold a record 14.8 trillion yen ($160 billion) in the first quarter of 2004 in an effort to weaken the currency.
‘More Tolerant’
“They’ve tried to make it clear they are more tolerant of a strong yen and have also suggested they aren’t convinced intervention is effective,” said Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment banking arm of Credit Agricole SA. “I think they’ll leave it alone to be honest.”
The pound fell to a four-month low against the euro as a report showed the U.K.’s jobless rate rose to the highest level since 1995, supporting the case for the Bank of England to keep the benchmark interest rate at a record low of 0.5 percent.
The BOE’s Governor Mervyn King said yesterday policy makers are considering lowering the rate they pay financial institutions to hold reserves at the bank to encourage lending.
“It’s real rollercoaster ride for sterling at the moment,” Tom Levinson, a currency strategist in London at ING Bank NV, said in a Bloomberg Television interview. “Comments from Governor King were pretty dovish. That’s obviously put sterling back under pressure.”
The pound depreciated 0.4 percent to 89.23 pence per euro after earlier reaching 89.33 pence, the weakest level since May 15. Sterling was little changed at $1.6508.
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: September 16, 2009 16:13 EDT
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