Euro Falls From 7-Week High on Slowdown Signs; Kiwi Gains

By Mariko Ishikawa & Kristine Aquino - Dec 6, 2012 1:12 PM GMT+0800

The euro fell from a seven-week high against the dollar before a report forecast to show the currency bloc’s economy contracted, adding to signs its three-year debt crisis is hindering growth.
The common currency slid versus most of its 16 major peers after Standard & Poor’s downgraded Greece to selective default. Along with data due today on the euro area’s third-quarter gross domestic product, European Central Bank President Mario Draghi and his board meet on policy. The New Zealand dollar rose against most of its main counterparts after Reserve Bank Governor Graeme Wheeler said the outlook for the nation’s economy is stronger and policy makers kept interest rates steady.

“The data is clearly suggesting that the ECB is going to have to do something more,” said Ray Attrill, Sydney-based global co-head of currency strategy at National Australia Bank Ltd. “We could get some kind of a hint that rates could be cut at a future meeting. If we get any soundings in that direction from Draghi today, then that could put a little bit of pressure on the euro.”

The shared currency slid to $1.3055 as of 2:10 p.m. in Tokyo down 0.1 percent from yesterday, when it touched $1.3127, the highest since Oct. 18. The euro traded at 107.71 yen from 107.78. The Japanese currency was at 82.51 per dollar, after weakening 0.7 percent to 82.47 yesterday.

European Economy

The euro area’s GDP probably slipped 0.1 percent in the third quarter from the previous three-month period, according to the median estimate of economists surveyed by Bloomberg News. That would confirm data from last month showing the bloc fell into a recession for the second time in four years. Economists in a separate poll expect the ECB will leave its key rate unchanged at 0.75 percent today.

Greece’s credit grade was cut to SD, or selective default, from CCC, S&P said on its website yesterday. The nation has offered 10 billion euros ($13.1 billion) to buy back bonds issued earlier this year in an attempt to cut a debt load that may threaten future international aid.

The euro has fallen 1.8 percent this year, according to Bloomberg Correlation-Weighted Indexes. The yen’s 9.9 percent drop was the biggest decline among the 10 developed-nation currencies tracked by the gauge. The dollar lost 2.6 percent.
The yen remained lower versus its U.S. counterpart after sliding yesterday by the most since Nov. 21.

‘Decisive Action’

The Bank of Japan (8301) is ready to take “appropriate and decisive action” if risks to its outlook become significant, Deputy Governor Kiyohiko Nishimura said in a speech in Niigata, northwest Japan yesterday before the central bank sets policy on Dec. 20.

Japan’s opposition Liberal Democratic Party leader Shinzo Abe, favored to win a Dec. 16 election according to opinion polls, has called for more monetary stimulus to reach 2 percent inflation. The central bank’s target is currently 1 percent.
“Government pressure on the BOJ to ease will increase,” said Greg Gibbs, Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc. “If there’s any currency out there that you have to assume is at risk of a major change toward a weaker trend next year, it’s the yen.”
The Reserve Bank of New Zealand left its official cash rate unchanged at 2.5 percent, in line with the estimates of 16 economists in a Bloomberg survey.

“The overall outlook is for stronger domestic demand and the elimination of current excess capacity by the end of next year,” Governor Wheeler said in a statement today in Wellington. “This is expected to cause inflation to rise gradually toward the 2 percent target midpoint.”
“The statement from the RBNZ is less dovish than the market had anticipated,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc.

New Zealand’s dollar fetched 82.90 U.S. cents after advancing 0.6 percent yesterday to 82.88. The so-called kiwi climbed 0.1 percent to 68.40 yen, after touching 68.52, the strongest since March 27.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net