Dollar Rises Against Higher-Yielding Currencies as Stocks Fall

By Oliver Biggadike and Lukanyo Mnyanda

Dec. 7 (Bloomberg) -- The dollar rose to its highest level in a month against the euro as stocks fell on speculation the equity rally has outpaced prospects for economic growth, discouraging demand for riskier assets.

The dollar and yen gained versus higher-yielding currencies such as the New Zealand and Australian dollars. The yen rose against the dollar as Japanese exporters took advantage of its biggest weekly drop against the dollar since 1999 to buy it.

“The dollar was benefiting overnight,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “Sentiment’s a little more cautious. We’re starting to get into the middle of December, and people are really not doing much more trading.”

The dollar strengthened to $1.4815 per euro at 8:45 a.m. in New York, from $1.4858 last week. It earlier traded at $1.4756, the strongest level since Nov. 4. The yen was at 133.40 per euro, from 134.54. It was at 90.05 per dollar, from 90.56.

European stocks dropped, with the Dow Jones Stoxx 600 Index, a benchmark for the region, losing 0.7 percent. U.S. stock-index futures also declined.

The dollar climbed for the fourth consecutive day against Australia’s and New Zealand’s currencies. The Aussie bought 91.04 U.S. cents, from 91.47 cents last week. The New Zealand dollar was at 71.07 cents, from 71.63 cents.

The greenback jumped against the euro on Dec. 4 after a report showed U.S. employers cut the fewest jobs since the recession began, prompting traders to increase bets on Federal Reserve rate increases.

Outlook for Dollar

Traders in the $3.2-trillion-a-day foreign-exchange market are paying the highest prices in more than a year to protect against a sudden rebound in the dollar after its worst annual performance since 2003. Renewed financial turmoil may boost the currency as investors buy U.S. assets such as Treasuries.

The yen advanced against the dollar on speculation exporters were attracted by the currency’s 4.5 percent slide last week. A weaker yen makes domestic goods less expensive abroad and increases the value of earnings made overseas.

“Exporters may start hedging substantially for the new fiscal year starting April 2010 sooner rather than later,” Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co., wrote today in an e-mail message to Bloomberg. “As exports increase steadily along with the global economic recovery, there is much incentive to sell the dollar above 90.”

Japanese Factories

Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.

Gains by the dollar may be limited on speculation Fed Chairman Ben S. Bernanke will use a speech at the Economic Club of Washington today to signal that policy makers aren’t ready to raise rates. The Fed’s target for overnight bank loans is a range of zero and 0.25 percent.

Employers in the U.S. cut 11,000 jobs in November, the fewest since the recession began, the Labor Department reported on Dec. 4. The median forecast of economists in a Bloomberg survey was for a reduction of 125,000 jobs. The unemployment rate fell to 10 percent from 10.2 percent.

Futures on the Chicago Board of Trade showed a 52 percent chance the Fed will raise the target lending rate by at least a quarter-percentage point at its June meeting, up from 32 percent a week ago.

‘Fine Line’

“Bernanke will be cognizant of the risks of talking up the recovery too fast and will emphasize that we’re still some way from seeing significant levels of job creation,” said Jeremy Stretch, senior currency strategist at Rabobank International in London. “Central bankers are all walking a fine line.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners, was little changed at 75.914. It rose 1.2 percent last week, the most since the five days through June 5. It has declined 6.5 percent this year.

The U.S. currency faces “crosswinds” as rising stocks stoke demand for higher-yielding assets, reducing the allure of the dollar as a haven, according to the Bank for International Settlements.

“Safe-haven flows that favored the dollar have been reversing,” the Basel, Switzerland-based BIS said in its quarterly report. “When equities fall, risk appetite shrinks and volatility is increasing, dollars are bought by both types of investors, as in 2008. With risk on, equity prices rising and declining volatility, dollars are sold.”

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net