Euro Remains Lower Before Region’s PMI Data; Kiwi Gains

By Monami Yui and Mariko Ishikawa - Sep 20, 2012 1:33 PM GMT+0800

 

The euro fell against the dollar and yen before data today forecast to show European services and manufacturing contracted, adding to evidence that the region’s debt crisis is sapping growth.
Japan’s currency gained versus all of its 16 major peers amid speculation unexpected expansion of monetary stimulus by the Bank of Japan (8301) will do little to spur economic growth as a territorial dispute with China and weak global demand cloud the outlook for shipments. Australia’s dollar sank after a private survey showed China’s manufacturing may shrink for an 11th month, dimming prospects for the South Pacific nation’s exports.
“We think at these levels, euro is a sell” because of the state of the European economy, said Joseph Capurso, a strategist at Commonwealth Bank of Australia (CBA) in Sydney. “The lessons of the last decade have shown that the Bank of Japan’s asset purchases are simply not enough to change the trajectory of the Japanese economy or the currency.”
The euro dropped 0.8 percent to 101.5 yen at 6:30 a.m. in London. The 17-nation currency slid 0.4 percent to $1.2995. The yen added 0.3 percent to 78.13 per dollar after gaining 0.6 percent yesterday.
A euro-zone composite index for services and manufacturing industries was probably at 46.6 in September, from 46.3 the prior month, according to the median estimate of economists surveyed by Bloomberg News before London-based Markit Economics releases the figure today. Readings below 50 signal contraction.
“The economy is going to get worse before it gets better in Europe,” Commonwealth Bank’s Capurso said.

Spanish Auction

Spain, the fourth-largest economy in the currency bloc, will auction 3- and 10-year notes today. The nation’s benchmark 10-year yield has fallen to 5.7 percent from the euro-era record of 7.75 percent on July 25 since the European Central Bank unveiled an unlimited bond-purchase program on Sept. 6 aimed at lowering government borrowing costs.
The country will consider seeking a bailout if the conditions imposed are acceptable, Deputy Prime Minister Soraya Saenz de Santamaria said this week, the strongest signal from the government that it may reach for the financial lifeline.
“A poor auction result may be a positive for the EUR ironically as it would boost the incentive for Spain to ask for assistance sooner rather than later,” Michael Sneyd, a currency strategist at BNP Paribas SA in London, wrote in an e-mailed note yesterday, referring to the common currency.
The euro weakened 4.4 percent in the past year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 1 percent and the yen fell 3 percent.

BOJ Stimulus

The BOJ said yesterday it will add 10 trillion yen ($128 billion) to its 45 trillion-yen fund that buys assets including government debt. The move came after the Federal Reserve introduced purchases of $40 billion of mortgage debt a month on Sept. 13 in a third round of so-called quantitative easing.
Japan’s trade deficit widened to 754.1 billion yen in August, following a revised 518.9 billion yen shortfall in July, the Finance Ministry said in Tokyo today. That compared with the median forecast in a Bloomberg poll of economists for an 829.3 billion yen deficit.
The dollar may weaken to the lowest in more than 10 months against the yen after a “bearish reversal,” according to JPMorgan Chase & Co., citing trading patterns.

Technical Analysis

The greenback failed to rise above a key resistance level at 79.32 yen, the 200-day moving average, and risks falling to 77.13 yen, before dropping to 76.01, Niall O’Connor, a New York- based technical analyst at JPMorgan, wrote in a note to clients yesterday. “Additional near term weakness seems likely to develop, he wrote. The level of 76.01 yen would be the lowest since October 31, according to data compiled by Bloomberg.
In China, a preliminary reading today showed a gauge by Markit and HSBC Holdings Plc for manufacturing was 47.8 this month from 47.6 in August. China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.
The Aussie lost 0.7 percent to $1.0403. New Zealand’s currency slipped 0.3 percent to 82.44 U.S. cents after earlier gaining as much as 0.4 percent.
The so-called kiwi strengthened earlier after the statistics bureau said today the nation’s gross domestic product rose 0.6 percent in the three months ended June 30 from the previous quarter, when it expanded a revised 1 percent. The median estimate in a Bloomberg survey of economists was for a 0.4 percent advance.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net