Currencies

[Muthukali]

Top Forecasters See Euro Weakness Returning on Spain

ECB Stimulus
While the Fed has said it would keep its range for overnight bank lending at zero to 0.25 percent through 2014, it’s holding off on increasing monetary stimulus unless the U.S. economic expansion falters or prices rise more slowly than its 2 percent target, according to minutes of the central bank’s March 13 meeting released on April 3. Fed Bank of Richmond President Jeffrey Lacker said a day later that U.S. economic growth next year may warrant a rate increase before 2014.

Europe’s emergency stimulus won’t end soon, Draghi said at a press conference after the ECB’s April 4 meeting. It’s premature to talk about an exit strategy, he said, adding that inflation will remain contained in the medium term.

The euro area is headed for a contraction of 0.4 percent this year, after 1.5 percent growth in 2011, according to the median estimate of 20 economists in a Bloomberg News survey. That compares with growth of 2.2 percent in the U.S., the fastest since 2010, as forecast in a separate survey.

Interest Rates
Strategists expect the ECB to keep its main refinancing rate at 1 percent through at least the third quarter of next year, while the Bank of Japan’s main rate will be 0.1 percent by the end of that period, separate surveys show. The BOJ kept its key rate and stimulus programs unchanged after a meeting today.

Investors may have overestimated developed nations’ readiness to raise rates and reverse loose monetary policy, according to Royal Bank of Canada, which had the most accurate dollar-yen forecast.

“There’s an unrealistic expectation of how early central banks will tighten in the world outside Japan,” Adam Cole, global head of foreign exchange strategy in London at the firm’s RBC Capital Markets unit, said in an April 4 telephone interview. “If the market moves to reflect that and we see two- year yields in the U.S. and the rest of the world come down back toward Japanese levels, the upward pressure on the yen will reemerge.”

Yen Forecasts
Two-year yields on Japanese bonds are at 0.11 percent, just below the one-year average of 0.15 percent. The difference between the Japanese yields and similar-maturity U.S. yields is 0.20 percentage point, up from as low as 0.08 percentage point this year in January. The spread between the Japanese securities and German two-year yields was 0.02 percentage point, after the yields were almost the same earlier this year.

Cole said the yen will appreciate 10 percent to 73 per dollar by the end of the year and by 15 percent to 93 per euro.

Public borrowing in Spain will balloon to a record 79.8 percent of gross domestic product this year, according to the 2012 budget that the government presented to parliament April 3, as the nation finances a deficit that was almost three times the euro-area limit last year.

Spain’s 10-year bond yield has jumped about 85 basis points, or 0.85 percentage point, since Prime Minister Mariano Rajoy said on March 2 that the government budget deficit would miss the 4.4 percent of GDP target the previous administration had agreed to with the EU. Spain agreed to set the target at 5.3 percent March 12.

Borrowing Costs
The additional yield investors demand to hold Spanish 10- year bonds instead of similar-maturity German bunds, the region’s benchmark government securities, climbed to more than 400 basis points last week, reaching the most since Nov. 30.

Borrowing costs for Spain are at December levels, before the ECB’s unlimited three-year bank loans were first allotted on Dec. 21. Some of the 1 trillion euros taken in the longer-term refinancing operations, or LTROs, has been recycled into government debt, which helped shave as much 1.44 percentage points off the 10-year yield before it began to rise in March.

Italian Prime Minister Mario Monti faces strikes against austerity measures and his labor-reform plan, which allows companies to fire workers for economic reasons without letting courts reinstate them, is dividing his ruling coalition. The Democratic Party, which has supported the prime minister’s four- month-old government, has pledged to change the rule in parliament, even as Monti has said he won’t permit it.

Short Euro
Futures traders have been short the euro, or betting on a decline in the common currency, for 32 straight weeks, the longest such period since 2010.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 79,480 in the week ended April 3. Net longs were 99,516 in May 2011, as the Fed was ending its $600 billion bond-buying program.

“The macro picture is slowly but surely turning more compelling for the dollar,” said Westpac’s Franulovich. “The U.S. growth picture is much more secure than Europe’s.”

Strategists were ranked according to the accuracy of their estimates for 13 currency pairs in each of six quarters beginning with the three months ended Dec. 31, 2010. To test long-term accuracy, Bloomberg Rankings added one annual forecast, which was made in March 2011 for March 2012.

 

[Muthukali]

Yen Drops on Speculation BOJ Will Add Easing Measures

The yen weakened against 15 of its 16 major counterparts as the Bank of Japan (8301)’s policy inaction yesterday fueled speculation it will add to monetary easing later this month.

The euro traded 0.6 percent from a three-week low against the greenback before Italy sells 11 billion euros ($14.4 billion) of bills today and longer-term debt tomorrow amid a jump in the nation’s borrowing costs. The Australian dollar rallied as Standard & Poor’s 500 Index futures advanced, signaling the underlying gauge may halt a five-day drop, supporting demand for riskier assets.

“There’s definitely a reasonable chance” the BOJ will do more later this month, said Sacha Tihanyi, a senior currency strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. (BNS) Monetary easing by Japan’s central bank “fundamentally undermines the yen,” he said.

The Japanese currency dropped 0.4 percent to 105.97 per euro at 6:19 a.m. in London. The yen slid 0.3 percent to 80.88 per dollar. The euro traded at $1.3105 from $1.3082 yesterday, after falling to $1.3033 on April 9, the weakest since March 15.

Australia’s dollar traded at $1.0292, 0.4 percent higher than yesterday’s close, after earlier falling to $1.0226, the lowest since Jan. 9. S&P 500 Index (SPX) futures added 0.4 percent.

BOJ policy makers yesterday kept the bank’s key interest rate and an asset-purchase plan unchanged, the second-straight meeting without a policy shift. They meet again on April 27.

BOJ Policy
Governor Masaaki Shirakawa and his board unexpectedly expanded bond purchases by 10 trillion yen ($124 billion) on Feb. 14 while setting an inflation goal of 1 percent. Nomura Holdings Inc., SMBC Nikko Securities Inc. and NLI Research Institute Ltd. expect the BOJ to expand asset buying at the next meeting to help meet the price target.

The yen has strengthened 2.5 percent in the past week, the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has retreated 0.1 percent, while the dollar gained 0.3 percent.

Ten-year yields in Italy, Europe’s third-biggest economy, rose 23 basis points to 5.69 percent yesterday, the highest level since Feb. 17 and the biggest increase since Dec. 19. The nation will sell as much as 3 billion euros of 91-day bills and 8 billion euros of 361-day bills today, followed by auctions tomorrow of debt due in 2015, 2020 and 2023.

Spanish Bond Yields
Spain’s 10-year yields touched 5.99 percent yesterday, the most since Dec. 12. Economy Minister Luis de Guindos declined to rule out a rescue for Spain and central bank Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected.

“The European issue is coming back to the fore, which was almost forgotten in the January-March period,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s No. 3 banking group by market value. “You can’t really buy the euro.”

The euro may drop to as low as 104 yen, a level unseen since Feb. 17, JPMorgan Chase & Co. said, citing trade patterns. The European currency has reached an important support zone of 106 to 105.65, a range that includes the 38.2 percent retracement from a January low to a March high, the 200-day moving average and a March low, JPMorgan said.

“The price action stays bearish,” Niall O’Connor, a technical analyst in New York at JPMorgan, wrote in a research note yesterday. “There remains little evidence of a reversal at this point.”

Euro Technical Level
The 38.2 percent retracement from a January low to March high stood at 105.94, while the 200-day moving average was at 105.91, data compiled by Bloomberg show. The euro touched 105.65 on March 6, its lowest last month.

The dollar slid against most of its peers after Federal Reserve Chairman Ben S. Bernanke said the U.S. recovery is far from complete, spurring speculation the central bank will add stimulus. A report last week showed U.S. employers added the fewest jobs in March in five months.

The Fed bought $2.3 trillion of securities in two rounds of so-called quantitative easing, or QE, from December 2008 to June 2011, and has pledged to keep interest rates low through late 2014. It will hold off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its target, according to minutes of the Fed’s March 13 meeting released last week.

“The flip between the market pricing in QE3 and then taking it out generates uncertainty for the U.S. dollar and risk assets more broadly,” Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd. (NAB), wrote in a research note today.

The U.S. central bank is set to release its Beige Book regional business survey today.

 

[Muthukali]

Aussie, N.Z. Dollars Rebound as U.S. Stock Futures Rise

The Australian and New Zealand dollars rallied as Standard & Poor’s 500 Index futures advanced, signaling the underlying gauge may halt a five-day drop, supporting demand for riskier assets.

New Zealand’s dollar rebounded from a one-month low against the yen after data showed business confidence improved in the first quarter, adding to signs the country’s economy remains resilient. The so-called Aussie earlier fell to the weakest in three months as commodities prices tumbled amid concern Europe’s debt crisis is worsening. Italy will sell up to 11 billion euros ($14.4 billion) of bills today.

“The Australian and New Zealand’s dollars are being bought back after yesterday’s selloffs,” said Takuya Kawabata, a researcher at Gaitame.com Research Institute Ltd. in Tokyo, unit of Japan’s largest currency-margin company. “While a positive business sentiment report alone may not drive the New Zealand dollar higher, we could see follow-through if economic data continue to improve and we start to see a tick up in consumer prices.”

Australia’s dollar earlier fell to $1.0226, the lowest since Jan. 9, before trading at $1.0281 at 2:15 p.m. in Sydney, 0.3 percent higher than yesterday’s close. It climbed 0.4 percent to 83.06 yen after it touched 82.49 yen, the weakest since Feb. 7.　New Zealand’s currency rose 0.3 percent to 81.71 U.S. cents. The kiwi advanced 0.4 percent to 66 yen from yesterday, when it touched 65.60, the lowest since March 7.

In New Zealand, a net 13 percent of 797 companies surveyed expect the economy will improve over the next six months, from zero percent in the fourth-quarter survey, the New Zealand Institute of Economic Research Inc. said today in Wellington. The net figure subtracts the proportion of pessimists from optimists.

N.Z. Economy
“The New Zealand dollar is being torn between the negatives of the waning risk appetite and building domestic momentum,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “That tug-of-war continues and you’re likely to see the kiwi chopped around between the 80.90-82.50 range for the rest of the week.”

Should the New Zealand dollar stay above its March 6 low of 65.31 yen, the currency has scope to rebound this week toward 67, around its 12-day moving average, Gaitame.com’s Kawabata said, citing trading patterns.

The Australian dollar’s 14-day relative strength index versus the yen yesterday touched the 30 level that some traders see as signaling an asset may reverse direction.

Commodities Decline
Standard & Poor’s 500 Index futures added 0.3 percent. The MSCI Asia Pacific Index (MXAP) of stocks fell 0.7 percent following a 1.4 percent drop in the Thomson Reuters/Jefferies CRB Index (CRY) of raw materials yesterday.

“‘The big risk facing the New Zealand and Australian economies, and hence the Australian and New Zealand dollars, is a sharp fall in commodity prices,’’ said Bank of New Zealand’s Jones. ‘‘There’s more attention than usual on European bond auctions, given debt jitters are starting to flare up again.”

Italy’s 10-year yields rose 23 basis points to 5.69 percent yesterday, the highest level since Feb. 17. The nation will sell as much as 3 billion euros of 91-day bills and 8 billion euros of 361-day bills today. It is scheduled to auction bonds maturing in 2015, 2020 and 2023 tomorrow.

 

[Muthukali]

Aussie Rises to Week High, Bonds Fall After Labor Report

The Australian dollar rallied to a one-week high after data showed that employers added almost seven times the number of workers in March than forecast, easing prospects the Reserve Bank will cut interest rates.

Australia’s bonds fell as Asian stocks rose, pushing all government yields below their three-month averages. New Zealand’s dollar gained against most major peers after data showed the nation’s manufacturing industry expanded in March. Demand for both South Pacific currencies was also supported after Federal Reserve Vice Chairman Janet Yellen backed the case for more U.S. easing and commodities prices climbed.

“It’s quite a strong report at face value,” Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities Inc. said of the Australian jobs report. “There were some expectations that the RBA would need to cut rates by 50 basis points, but this report reminds you that the economy is not falling apart. The Aussie is well supported.”

Australia’s dollar earlier touched $1.0385, the strongest since April 3, before trading at $1.0375 as of 1:34 p.m. in Sydney, 0.7 percent higher than yesterday’s close in New York. The Aussie advanced 0.8 percent to 83.93 yen.

Government bonds declined, pushing the yield on the Australian 10-year security up by as much as three basis points, or 0.03 percentage point, to 3.92 percent. Yields (GACGB3) on the three- year government note rose seven basis points to 3.32 percent.

New Zealand’s currency added 0.2 percent to 82 U.S. cents from yesterday when it climbed 0.4 percent. The so-called kiwi rose 0.3 percent to 66.33 yen.

Hiring Surge
Australian payrolls rose by 44,000, the statistics bureau said in Sydney today. That compares with the median estimate for an increase of 6,500 in a Bloomberg News survey of 24 economists. The jobless rate held at 5.2 percent, compared with projections for a rise to 5.3 percent.

The RBA on April 3 held its benchmark interest rates unchanged at 4.25 percent. A Credit Suisse Group AG index based on swaps indicates the RBA will lower rates by 87 basis points, or 0.89 percentage point, over the next 12 months, compared to 94 basis points indicated yesterday.

Yellen endorsed the U.S. central bank’s “highly accommodative” policy, saying the Fed probably won’t achieve its goal of full employment for years. The central bank bought $2.3 trillion of securities in two rounds of so-called quantitative easing from December 2008 to June 2011 to support the economy, and it has pledged to keep interest rates low through late 2014.

‘Stimulative’ Language
“Fed members speaking are dovish members, and they will provide some stimulative type of language,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “Right now, QE3 doesn’t seem to be on the table, but it’s certainly possible. I see some upside for the next day or two” in Aussie and kiwi.

Bank of New Zealand Ltd. and Business New Zealand said today their Performance of Manufacturing Index was at 54.5 in March from 57.7 in February. A reading of more than 50 indicates that manufacturing is expanding.

The MSCI Asia Pacific Index (MXAP) of stocks rose 0.2 percent following a 0.6 percent gain in the MSCI’s World Index yesterday. The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials added 0.6 percent yesterday.

 

[Muthukali]

Asian Currencies Strengthen After Fed Monetary-Policy Comments

Asian currencies rose for a second day after a Federal Reserve survey showed the U.S. economy is improving and the central bank signaled its loose monetary policy would probably continue.

The Philippine peso and Malaysia’s ringgit climbed after official reports showed the nations’ exports surged in February. Fed Vice Chairman Janet Yellen endorsed the central bank’s “highly accommodative” policy, which supports inflows into higher-yielding emerging-market assets. Indonesia’s rupiah rebounded from a three-week low reached after an earthquake yesterday.

“The Fed might keep an easing bias longer than expected,” said Radhika Rao, an economist at Forecast Pte in Singapore. “That’s why Asian currencies are higher. The scale of the rebound in exports also caught the market by surprise.”

The ringgit advanced 0.3 percent to 3.0688 per dollar as of 4:20 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. Thailand’s baht strengthened 0.2 percent to 30.81 and the rupiah gained 0.3 percent to 9,180 while the peso rose 0.1 percent to 42.715.

The Bloomberg-JPMorgan Asia Dollar Index (ADXY) climbed for a second day, while its 60-day historical volatility was little changed at 3.27 percent. Philippine exports rose 14.6 percent in February versus a 3.1 percent gain in January, the government said today. Malaysia’s overseas sales advanced 14.5 percent, compared with 0.4 percent in January, official data showed on April 10.

Aceh Quake
The U.S. economy grew in all 12 of its regions as manufacturing, hiring and retail sales showed signs of strength, the Fed said in its Beige Book business survey yesterday. Still, further policy easing “could be warranted” if the recovery falters, Yellen said in a speech in New York.

The rupiah rebounded on speculation the central bank intervened after an 8.6-magnitude earthquake struck off Indonesia’s Aceh province yesterday. There have been no reports of fatalities directly from the quake, although several buildings were damaged, the Indonesian Red Cross said in a text- message today.

“Bank Indonesia is guiding the rupiah,” said Taufan Tito, a Jakarta-based foreign-exchange dealer at PT Bank Rakyat Indonesia.

The central bank kept its benchmark interest rate at 5.75 percent today, after cutting it by 25 basis points in February. The decision was predicted by all 21 economists surveyed by Bloomberg.

China Growth Slows
The baht reached its strongest level since April 2 on speculation exporters are converting income before local holidays that start tomorrow. Currency and bond markets will be shut through April 16 to ring in the Thai New Year, known as Songkran. European Central Bank executive board member Benoit Coeure said yesterday policy makers could revive bond purchases to lower Spain’s borrowing costs.

“There may be some exporter demand before the Songkran holiday, but trade may become more quiet today,” said Kozo Hasegawa, a Bangkok-based trader at Sumitomo Mitsui Banking Corp. “Risk sentiment is improving amid speculation about support for Spain, and that helps to boost regional currencies.”

China’s yuan was little changed at 6.3073 per dollar in Shanghai. The central bank raised the currency’s reference rate by 0.05 percent to 6.2984, the strongest level since March 30. The Chinese economy probably grew 8.4 percent last quarter, following an 8.9 percent expansion in the final three months of 2011, according to the median estimate in a Bloomberg News survey before a government report tomorrow.

The People’s Bank of China may cut interest rates in the “immediate future” as inflation isn’t too high, Michael Kurtz, chief Asian equity strategist at Nomura Holdings Inc. in Tokyo, wrote in a report dated yesterday.

Elsewhere, Taiwan’s dollar climbed 0.04 percent to NT$29.55 against its U.S. counterpart. South Korea’s won was little changed at 1,140.45 versus 1,139.70 on April 10. Vietnam’s dong gained 0.1 percent to 20,825.

 

[Muthukali]

South Korean Won, Stocks Gain as North’s Launch Failed

South Korea’s won rebounded from a three-month low and stocks rallied as the government said a rocket launch by North Korea failed.

The won gained 0.5 percent to 1,134.45 per dollar as of 11:11 a.m. in Seoul, according to data compiled by Bloomberg. It touched a one-week high of 1,131.25 earlier. The Kospi (KOSPI) stock index advanced 0.8 percent to 2,002.94. North Korea fired the rocket from its Sohae Satellite Launching Station at about 7:39 a.m. today and it exploded within minutes, South Korean Defense Ministry said in Seoul.

“Investors are just shrugging off this launch,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion. “The news came out before the market opened that the rocket launch failed, so investors didn’t have to worry about it.”

The Standard & Poor’s 500 Index added 1.4 percent in New York yesterday as U.S. policy makers signaled borrowing costs will stay low. South Korea’s government bonds were little changed as the central bank kept its benchmark interest rate unchanged at 3.25 percent for a 10th month at a review today. The decision was forecast by all 13 economists surveyed by Bloomberg News.

The currency touched 1,144.88 yesterday, the weakest since Jan. 18. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, declined 40 basis points, or 0.4 percentage point, to 8.63 percent today.

Centennial Celebration
“This would be the way a rocket launch would affect the market the least as it happened before onshore markets opened in Korea, and also it fell into the sea right after launch,” said Ryoo Hyun Jung, a Seoul-based chief currency dealer at Citibank Korea Inc. “Markets will reflect U.S. stock gains.”

The North has said the projectile was to carry a satellite into orbit as part of celebrations marking the centennial of state founder Kim Il Sung. It acted in defiance of international pressure including U.S. warnings that doing so would nullify a food aid deal to the impoverished nation.

The U.S. military tracked the launch of a North Korean rocket and said that its first stage tumbled into the Yellow Sea 165 kilometers (102 miles) west of Seoul and the “remaining stages were assessed to have failed,” it said in a statement.

Nuclear Tests
South Korea’s central bank will closely monitor stocks, bonds and currency markets, Deputy Governor Park Won Shik said at an emergency meeting in Seoul today. The military is monitoring for any further missile tests and for a potential nuclear test by the North, Major General Shin Won Sik, the director of policy planning at the defense ministry, said in a televised briefing in Seoul.

Victek Co. (065450) led declines in South Korea’s defense-related stocks. The maker of electronic warfare equipment plunged 12 percent to 2,365 won. Huneed Technologies (005870), a military communication equipment maker, slipped 11 percent to 3,480 won.

“Markets see this as posturing rather than as a genuine threat,” said Prasad Patkar, who helps oversee about $1 billion at Platypus Asset Management Ltd. in Sydney. “North Korea is a pest we’ve gotten used to. Life goes on.”

Federal Reserve Vice Chairman Janet Yellen and New York Fed President William C. Dudley endorsed the view that borrowing costs will stay low through 2014 yesterday, with Dudley noting it’s “still too soon to conclude that we are out of the woods.”

The yield on South Korea’s 3.25 percent bonds due December 2014 was 3.50 percent, unchanged from yesterday, Korea Exchange Inc. prices show. Three-year debt futures fell 0.01 to 104.01 and the one-year interest-rate swap was little changed at 3.51 percent.

 

[Muthukali]

US urges China to make 'more movement' over yuan

The White House reacted cautiously to an announcement from China that it was loosening up its currency controls saying it would like to see "more movement."

"They've made some progress, we'd like to see more movement. We noted this announcement. We're reviewing it closely," a top administration advisor, Ben Rhodes, told reporters on the sidelines of a regional summit in Colombia.

"It comes in the continuum of us wanting to see the Chinese take more of these steps to see their currency appreciate to come in line with the market value," added Rhodes, the deputy national security advisor.

The yuan is currently allowed to trade 0.5 percent on either side of a midpoint price set by the central bank every trading day.

The new rules announced Saturday by China's central bank -- seen as a shift towards adopting more market-oriented reforms -- will come into effect on Monday and allow the currency to fluctuate by up to 1.0 percent either side.

The United States and Beijing's other trading partners have long criticized China's yuan exchange rate, saying it is kept artificially low, fuelling a flow of cheap exports that have helped trigger huge trade deficits.

Chinese Prime Minister Wen Jiabao however acknowledged last month that the yuan had increased in value by some 30 percent since 2005 in comparison to the dollar.

 

[Muthukali]

Euro Drops Against Major Peers Before Spain Debt Auctions

The euro declined to an eight-week low against the yen before Spain auctions bills and bonds amid concern Europe’s debt crisis will continue.

The 17-nation currency slid to its weakest versus the British pound since September 2010 after the cost of protecting Spain’s debt from nonpayment climbed to a record. China’s yuan retreated after the central bank doubled the so-called trading band of the currency. The yen strengthened against all of its 16 counterparts as Asian stocks extended a global rout, boosting demand for haven currencies.

“The euro does look like it’s vulnerable to breaking down a lot further in the short term,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “If Spain’s yields continue to rise, then they’re going to get to a point where they may well need some form of assistance, as Greece did.”

The euro fell to 104.82 yen, the lowest since Feb. 20, before trading at 104.93 as of 6:35 a.m. in London, 0.9 percent lower than the close on April 13. It lost 0.4 percent to $1.3025, after touching $1.3009, the lowest since March 15. The single currency dropped as much as 0.4 percent to 82.21 U.K. pence, a level unseen since September 2010. The yen appreciated 0.5 percent to 80.57 per dollar after reaching 80.45, the strongest since Feb. 29.

Spain will sell 12-month and 18-month bills tomorrow, followed by April 19 auctions of debt due in 2014 and 2022. Yields (GSPG10YR) on the nation’s 10-year notes soared as much as 18 basis points to 6 percent on April 13, edging toward the 7 percent level that pushed Greece, Ireland and Portugal into rescues.

Bond Purchases
Klaas Knot, a member of the European Central Bank governing council, said on April 13 that he doesn’t see a “good reason” for the ECB to resume government bond purchases. “I think there has been an overreaction to the unfortunate communication surrounding Spain,” he said in Amsterdam.

Jaime Garcia-Legaz, Spain’s deputy economy minister, said in an interview on April 13 that the ECB should “step up purchases of bonds.”

Five-year credit-default swaps linked to Spain’s bonds jumped to 502.5 basis points at the end of last week, the highest on record going back to October 2004, according to data from CME Group Inc.’s CMA. The swap premiums rise when investors’ perception of creditworthiness deteriorates.

Risk Aversion
The euro has lost 0.5 percent in the past month against a basket of the 10 currencies tracked by Bloomberg Correlation- Weighted Indexes. The yen was the best performer with a 4.7 percent gain.

“There seems to be renewed fear that the euro-zone crisis has taken a turn for the worse,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “Stock indexes are all in the red, so that shows that there’s risk aversion at the moment. The interest is to buy back the yen.”

The MSCI Asia Pacific Index of shares retreated 0.8 percent after the MSCI All-Country World Index (MXWD) slid 1.1 percent on April 13. The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), jumped 14 percent to 19.55 the same day, the biggest advance since March 6.

The yuan weakened 0.2 percent to 6.3127 per dollar after the People’s Bank of China said on April 14 that the currency can move as much as 1 percent against the dollar from a so- called daily fixing rate, compared with the previous limit of 0.5 percent.

China’s Yuan
“The yuan is weaker as investors are again worried about Europe and a bit on China’s growth,” said Tommy Ong, the Hong Kong-based senior vice president of treasury and markets at DBS Bank (Hong Kong). “It’s an opportune time for China to widen the band when appreciation expectations aren’t so strong. That won’t induce any massive speculative bets on its currency.”

The Dollar Index (DXY) was 0.1 percent from a one-month high before U.S. data forecast to show retail sales increased last month, damping speculation the Federal Reserve will add to monetary easing.

Four members of the Federal Open Market Committee judged that monetary policy should be tightened from 2015, while two preferred 2016, according to a Jan. 25 statement from the Fed. The central bank bought $2.3 trillion of bonds from 2008 to 2011 in two rounds of quantitative easing.

Fed Policy
“Any revisions from the six doves who at the January FOMC meeting only forecast interest rates being increased from 2015 and 2016 will further help reduce fears the Fed will engage in a third round of quantitative easing,” Mansoor Mohi-uddin, head of foreign-exchange strategy in Singapore at UBS AG, wrote in an e-mailed note on April 14. “We continue to see the Fed refraining from renewed money printing this year.”

Retail sales rose 0.3 percent in March after a 1.1 percent gain the prior month, according to the median estimate of economists surveyed by Bloomberg News. The Commerce Department will release the figure today.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, advanced 0.3 percent to 80.084 after reaching 80.177 on April 5, the highest since March 16.

 

[Muthukali]

Euro Declines Before Spanish Sales, German Confidence

The euro fell versus most of its 16 major counterparts before Spain sells securities after borrowing costs climbed to the highest level this year, boosting concern Europe’s debt crisis is spreading.

The 17-nation currency weakened against the dollar before reports that may show confidence among investors in Germany, Europe’s biggest economy, fell this month after climbing to a 21-month high in March. Australia’s dollar remained lower after a two-day decline versus its U.S. counterpart before the Reserve Bank releases minutes of this month’s meeting today.

“My feeling is that it’s still overall a bearish mood with regard to the euro,” said Kara Ordway, a currency strategist at City Index Group Ltd. in Sydney. The debt sale “will give us a first indication as to how currently people view Spain.”

The euro lost 0.2 percent to $1.3117 at 9:51 a.m. in Tokyo after reaching $1.2995 yesterday, the lowest level since Feb. 16. The shared currency fell 0.1 percent to 105.62 yen after dropping 0.2 percent to 105.67 yesterday. The U.S. dollar was little changed at 80.52 yen after declining yesterday to 80.30, the weakest since Feb. 29.

Spain will sell 12-month and 18-month bills today, followed by auctions of debt due in 2014 and 2022 on April 19.

Yields on the nation’s 10-year notes soared as much as 18 basis points, or 0.18 percentage point, to 6.16 percent yesterday. That’s the highest level since Dec. 1 and is edging toward the 7 percent level that pushed Greece, Ireland and Portugal into rescues. The cost of insuring against a Spanish default rose eight basis points to 511 yesterday, the highest on record, according to CMA.

‘Fundamental Objective’
Spanish Prime Minister Mariano Rajoy said his nation must slash its budget deficit in order to maintain access to financing. “The fundamental objective at the moment is to reduce the deficit,” Rajoy told a conference in Madrid yesterday. “If we don’t achieve this, the rest won’t matter: we won’t be able to fund our debt, we won’t be able to meet our commitments.”

Spain has the euro area’s fourth-biggest economy and the government forecasts it’ll contract 1.7 percent this year as the deepest budget cuts in more than 30 years are implemented. The plan seeks to shrink the deficit to 5.3 percent of gross domestic product this year from 8.5 percent last year.

German Confidence
Germany’s ZEW Center for European Economic Research in Mannheim will probably report today its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 19 in April from 22.3 in March, according to the median estimate in a Bloomberg News survey. Last month’s figure was the highest reading since June 2010.

“The euro should continue to be constrained by the prospect of soft ZEW survey results today amid already nervous conditions in peripheral bond markets,” Cameron Umetsu, a currency strategist at UBS AG, wrote in a report.

The euro has lost 0.2 percent in the past month, according to Bloomberg Correlation Weighted Indexes. The Australian dollar dropped 2.3 percent in the same period, the worst performance among the 10 developed-nation currencies tracked by the gauge.

The Reserve Bank of Australia will release minutes of its April 3 meeting, when officials held the benchmark interest rate unchanged at 4.25 percent. Governor Glenn Stevens signaled a willingness to lower rates after the board “judged the pace of output growth to be somewhat lower than earlier estimated.”

The so-called Aussie lost 0.1 percent to $1.0350 after declining 0.8 percent in the past two days.

 

[Muthukali]

RBA Sees Case for Rate Cut If Inflation Eases

Australia’s central bank said a weaker expansion flowing through to slower inflation would increase prospects for the first interest-rate cut this year, minutes of its April 3 meeting showed. The currency fell.

“Members had lowered their assessment of the pace of growth somewhat,” the minutes released today by the Sydney- based Reserve Bank of Australia showed. “If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for further easing of monetary policy.”

The minutes reaffirmed that the next rate reduction hinges on an April 24 report on first-quarter inflation, as recent data indicates the economy is growing slower than the central bank predicted. The RBA decided against lowering borrowing costs at its three meetings this year as the global recovery stabilizes and a mining boom sustains domestic growth.

The RBA board will “have the opportunity at its next meeting to review the inflation outlook based on comprehensive new data on prices, as well as information on demand and output,” the minutes showed. “Members judged it prudent to evaluate those data before considering a further policy adjustment.”

The Australian dollar weakened after the release, declining to $1.0332 as of 11:33 a.m. in Sydney from $1.0342 just before the release and $1.0356 yesterday in New York.

Traders are pricing in a 91 percent chance the RBA will reduce borrowing costs by a quarter percentage point to 4 percent at the next policy meeting on May 1, a Credit Suisse Group AG index showed.

Resource Investment
RBA Governor Glenn Stevens and his board reduced borrowing costs twice late last year as employment stagnated and asset prices declined even as resource investment surged and the local dollar strengthened.

“In underlying terms, inflation was expected to remain within the target” of 2 percent to 3 percent over the year ahead, policy makers said in the minutes. “Members again noted that some improvement in productivity growth would be needed to achieve this forecast.”

The nation’s unemployment rate has held at about 5.25 percent for the past six months even as the currency’s strength hurts manufacturing and tourism. “Members noted, however, that an easing in average hours worked and a decline in the participation rate were indicative of a softer labor market than implied by the unemployment rate,” policy makers said in the minutes.

Mixed Picture
Since the April 3 meeting, Australian government data have shown a mixed picture in the domestic economy.

Payrolls rose more than economists forecast in March, capping the best quarter since the final three months of 2010, and the unemployment rate held at 5.2 percent.

Australian home-loan approvals fell for a second month on the fastest exodus of first-home buyers in a decade, and consumer confidence declined to an eight-month low.

Policy makers noted “the sharp differences in performance between sectors and regions of the economy, and the considerable structural change that was occurring, as well as the soft overall conditions in the housing sector and the likelihood of a significant fiscal tightening in the next few years.”

Australia’s currency has remained above parity with the U.S. currency for almost four months as the RBA kept the nation’s benchmark borrowing cost at 4.25 percent, the highest level among major developed nations.

BlueScope Steel Ltd. (BSL), the country’s largest steel producer, shuttered its export division in August. Toyota Motor Corp. and General Motors Co. have cut jobs in Australia this year, citing the currency’s strength.

‘Moderate Expansion’
In the minutes, officials said the U.S. economy’s “moderate expansion” was continuing, while economic conditions in several European countries “remained weak.” Growth in China “had slowed to a more sustainable pace, as the authorities there had intended,” policy makers said.

Growth in Australia is being driven by China, the nation’s biggest trading partner, which is buying up iron ore, coal and natural gas as millions of people in the world’s most populous nation move to urban centers.

Resource projects in Australia valued at A$456 billion ($472 billion) are spurring companies such as BHP Billiton Ltd. (BHP) to increase hiring.

Trading Partners
“Growth in Australia’s major trading partners, weighted by shares of merchandise exports from Australia, was expected to be around average in 2012,” policy makers said in the minutes. “This would be underpinned by the continued economic recovery in the U.S., the prospect of still-solid growth in China, and a recovery of activity in other parts of east Asia.”

Mining investment had increased by about 60 percent in 2011 and with a large number of projects already at a commitment stage, resource investment and export volumes appear likely to increase further in coming years, policy makers said in the minutes.

Australia unexpectedly posted back-to-back trade deficits as coal and metal exports slumped, a government report earlier this month showed.

“Commodity prices have declined for a few months in late 2011 and were noticeably below their peaks, but generally had been relatively stable at quite high levels for the past few months,” policy makers said. “Although Australia’s terms of trade therefore appeared to have peaked, the level remained high.”

Policy makers noted the exchange rate remained high “in the context of an easing in the terms of trade.”

 

[Muthukali]

Yen Falls Versus Peers on Stock Gain, Before Jobs Report

The yen fell against all of its major peers as Asian stocks extended a global rally and before U.S. data that may show fewer Americans filed for jobless benefits, reducing demand for safer assets.

Japan’s currency retreated from a six-week high versus the dollar after the Nikkei newspaper said the Bank of Japan (8301) may raise its inflation forecasts, fanning speculation the central bank will add to monetary easing to achieve its price target. The euro was 0.3 percent from a 19-month low against the pound before Spain sells bonds tomorrow.

“On balance, you would still say conditions in Asia and the U.S. will sustain global growth activity at a reasonable level and prevent Europe from dragging the global economy into a severe downturn,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “We’ll see some strength in a range of currencies against the yen.”

The yen slid 0.6 percent to 81.32 per dollar at 11:22 a.m. in Tokyo from yesterday. It reached 80.30 on April 16, the strongest since Feb. 29. Japan’s currency lost 0.6 percent to 106.70 per euro. The 17-nation euro fell 0.1 percent to 82.37 pence after touching 82.10 on April 16, the lowest since September 2010. The euro dropped 0.1 percent to $1.3119.

The MSCI Asia Pacific Index of shares rose 1 percent. The MSCI World Index (MXWO) gained 1.6 percent yesterday.

Initial jobless claims in the U.S. fell to 370,000 in the week ended April 14 from 380,000 the prior week, according to the median estimate of economists in a Bloomberg News survey. The Labor Department will release the data tomorrow.

Global Growth
Demand for the yen and the dollar was limited after the International Monetary Fund raised its global growth estimates yesterday. Its World Economic Outlook forecast the economy will expand 3.5 percent this year and 4.1 percent in 2013, an increase from its January projections of 3.3 percent growth in 2012 and 4 percent next year.

Japan’s central bank may raise its 2012 forecast for the nation’s consumer price index, excluding food, to a range of zero to 0.5 percent from the 0.1 percent projected in January, the Nikkei reported, citing people familiar with the bank’s thinking. The BOJ, which set a 1 percent inflation goal on Feb. 14, will next meet on April 27.

“The dollar-yen remains above 80 because expectations are strong that the BOJ will ease monetary policy further at its next meeting,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “Because markets are expecting so much, if nothing is announced, dollar-yen is more likely to drop below 80.”

Spanish Auction
Spain will auction 3.3 percent two-year notes and 5.85 percent 10-year debt tomorrow. Yields on the nation’s benchmark 10-year bond slid 18 basis points to 5.89 percent yesterday after Spain raised more than its maximum target at a bill sale.

“Selling short-dated debt is no big achievement. The test is in the bond auction,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. (WBC), Australia’s second-biggest lender. “If that goes well, that would be a different thing, but ahead of that we would be selling into euro rallies.”

The euro has lost 0.8 percent this year, the worst performance after the yen and dollar among the 10 developed- nation currencies tracked by Bloomberg Correlation Weighted Indexes. The pound gained 0.6 percent in the same period.

The Bank of England will publish today the minutes of its April 5 meeting, when officials maintained its quantitative- easing program at 325 billion pounds ($518 billion). Government data showed yesterday that the nation’s consumer prices climbed 3.5 percent in March from a year earlier, above the BOE’s 2 percent target.

Head and Shoulders
The U.K. currency was little changed at $1.5925 after having risen 0.5 percent in the past two days.

The pound needs to climb above $1.5986 to invalidate “further weakness,” MacNeil Curry, head of foreign-exchange and interest-rates technical strategy at Bank of America Corp. in New York, wrote in a note yesterday. The level is the right shoulder of the so-called head-and-shoulders pattern on the currency’s chart, Curry wrote, and was last seen on April 12.

A head-and-shoulders pattern is formed when a currency makes three consecutive peaks, with the middle being the highest. A neckline is drawn across the base of the three peaks.

 

[Muthukali]

Aussie, Kiwi Rise

The Australian and New Zealand’s dollars rose after Xinhua News Agency said the reserve requirement ratio may be cut in China, a major trading partner for the South Pacific nations.

Both currencies rose against the yen after a report showed Japan had a trade deficit in March. Demand for the so-called kiwi was limited after data showed New Zealand consumer prices rose in the first quarter by less than the central bank forecast, giving Governor Alan Bollard scope to hold interest rates at a record-low 2.5 percent until next year. The nation’s two-year swap rate, a fixed payment made to receive floating rates, touched 2.895 percent, the lowest since Feb. 16.

“There was a report that the Chinese authority may cut the reserve requirements ratio,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s largest bank. “We’re not sure if the PBOC will cut the RRR or not, and we’ve seen the Aussie come off a bit because of that uncertainty,” he said, referring to the People’s Bank of China.

The Aussie dollar earlier rose as much as 0.3 percent to $1.0388, before trading little changed from yesterday at $1.0371 as of 11:05 a.m. in Sydney. The so-called Aussie gained 0.4 percent to 84.47 yen.

New Zealand’s dollar advanced 0.2 percent to 81.78 U.S. cents from yesterday, when it touched 81.46 cents, its weakest level since April 11. The kiwi rose 0.5 percent to 66.62 yen.

China’s Monetary Policy
China will boost liquidity by cutting reserve requirement ratio if necessary, Xinhua said, citing an unidentified PBOC official. China may also increase open market operations including reverse repurchase agreements, redemption of central bank bills, the report said. China is Australia’s biggest trading partner and New Zealand’s second-largest export market.

The yen weakened after Japan reported a trade shortfall of 82.6 billion yen ($1 billion) in March from a revised surplus of 29.4 billion yen in the previous month. The prediction in a Bloomberg News survey was for a 223.2 billion yen deficit.

New Zealand’s consumer prices climbed 0.5 percent from the fourth quarter, when they declined 0.3 percent, the government said in Wellington today. The result matched the median estimate in a Bloomberg poll. Prices increased 1.6 percent in the year ended March 31, the slowest annual pace since September 2010.

“With consumer prices at these levels, it’s unlikely the Reserve Bank of New Zealand will increase interest rates any time soon,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides currency margin-trading services.

A Credit Suisse Group AG index based on swaps indicates the RBNZ will raise interest rates by 11 basis points, or 0.11 percentage point, over the next 12 months, compared with 36 basis points of increase indicated on March 21.

 

[Muthukali]

Aussie, Kiwi Dollars Set for Week Loss on Europe Concern

The Australian and New Zealand dollars headed for a weekly loss amid concern that European leaders are struggling to contain the region’s debt crisis, sapping demand for riskier assets.

New Zealand’s dollar traded 0.2 percent from a one-week low as Asian stocks extended a decline in global shares. Demand for the so-called Aussie was also limited after a report today showed export prices in the first three months of the year fell for a second quarter. Meetings hosted by the International Monetary Fund start today in Washington, where Group of 20 officials discuss Europe’s fiscal problems.

“This market is expecting bad news out of Europe,” said Kurt Magnus, executive director of foreign-exchange sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “There is no conviction in the equity markets, which means there is no confidence. Against the U.S. dollar, the Aussie can go down to about $1.0150 on the next phase of European worry.”

The Australian dollar traded at $1.0313 as of 11:38 a.m. in Sydney from $1.0331 in New York yesterday, having declined 0.6 percent this week. The $1.0150 level was last seen on Jan. 9. The Aussie was little changed at 84.20 yen.

New Zealand’s dollar bought 81.24 U.S. cents from 81.37 yesterday, when it touched 81.22, the weakest since April 10. The so-called kiwi has fallen 1.3 percent since April 13. The currency traded little changed at 66.36 yen.

The MSCI Asia Pacific Index (MXAP) of stocks slid 0.6 percent. The MSCI World (MXWO) Index of stocks fell 0.5 percent yesterday, while the Standard & Poor’s 500 Index dropped 0.6 percent.

Export Prices
Australia’s export price index slid 7 percent from the fourth quarter, when it fell 1.5 percent, the statistics bureau said today. The index was forecast to drop 3 percent, according to the median forecast of economists in a Bloomberg News survey.

The South Pacific nations’ currencies were supported versus the yen on prospects the Bank of Japan (8301) will ease policy next week. Governor Masaaki Shirakawa said in a speech in Washington yesterday that Japan still needs monetary stimulus.

A Credit Suisse Group AG index based on swaps indicates the RBNZ will raise interest rates by eight basis points from a record-low of 2.5 percent over the next 12 months, compared with 36 basis points of increases indicated on March 21. A basis point is 0.01 percentage point.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was at 2.90 percent today, after yesterday touching 2.895 percent, the least since Feb. 16.

Yields on Australia’s benchmark 10-year notes fell one basis point to 3.81 percent, while there-year rates dropped two basis points to 3.22 percent.

 

[Muthukali]

Baht drops as exports may slow

Thailand's baht fell, extending this year’s biggest weekly decline, on speculation China’s economic slowdown and Europe's debt crisis will hamper a recovery in the country's exports.

The currency touched the weakest level since April 11 before a report this week that may show overseas sales rose 0.1 per cent in March from a year earlier, compared with a 0.9 per cent gain the previous month, according to the median estimate of economists in a Bloomberg survey. Asian stocks fell for a third day as European officials resisted calls from the International Monetary Fund and United States Treasury to do more to stem debt troubles.

"The weakness in the Thai baht is due to the situation in Europe that's causing some small capital outflows," said Kampon Adireksombat, an economist in Bangkok at Tisco Securities Co Ltd. "Apart from a base effect, exports are also affected by the slowdown in China and Europe."

The baht retreated 0.2 per cent to 30.97 per US dollar as of 3:35PM. in Bangkok, according to data compiled by Bloomberg. It fell to 31.00 earlier, the weakest level since April 11. The currency lost 0.6 per cent last week, the most since the five days ended Dec 30.

One-month implied volatility, a measure of foreign-exchange swings used to price options, fell to 4.52 per cent from 4.54 per cent on April 20. The MSCI Asia Pacific (MXAP) Index of stocks lost 0.1 per cent.

Mr Kampon said the baht will trade between 30 and 31 this year. Thailand's exports may grow 10 per cent this year, compared with the government's forecast for 15 per cent, he predicted. China and Europe each account for 10 per cent of Thai shipments, according to him. An HSBC Holdings Plc/Markit report today showed manufacturing in China likely contracted for a sixth month in April.

The yield on the Thai government's 3.25 per cent bonds due June 2017 dropped four basis points, or 0.04 of a percentage point, to 3.48 per cent, according to data compiled by Bloomberg. It fell 17 basis points in a three-week rally through April 20.

The government will auction eight billion baht ($258 million) of 2027 bonds on April 25, according to its sale calendar. It last sold 10 billion baht of similar-maturity notes on Feb 29 at 3.775 per cent.

 

[Muthukali]

Yen Drops Versus Peers on Prospects BOJ to Add Stimulus

The yen fell versus all of its 16 most-traded peers on speculation Bank of Japan (8301) officials will add to stimulus measures at a policy meeting this week.

The yen declined for a second day against the euro as Asian stocks climbed after shares overseas advanced, damping demand for haven assets. The greenback held a drop from yesterday versus the 17-nation euro before Federal Reserve policy makers conclude a two-day gathering today. Australia’s dollar advanced versus the Japanese currency after the first U.S. case of mad cow disease in six years increased prospects that demand for Australian beef will rise.

“The yen is likely to remain weak heading into the BOJ meeting,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency margin company. “Gains in stocks are also negative for the yen.”

The yen lost 0.3 percent to 107.63 per euro at 11:50 a.m. in Tokyo after declining 0.5 percent to 107.32 yesterday. Japan’s currency fell 0.3 percent to 81.55 per dollar from 81.32. The greenback was unchanged at $1.3197 per euro.

Australia’s dollar gained 0.3 percent to 84.09 yen. New Zealand’s dollar added 0.1 percent to 66.19 yen. Financial markets in both nations were closed for national holidays.

The MSCI Asia Pacific Index of equities rose 0.2 percent. The Standard & Poor’s 500 Index (SXXP) of U.S. stocks gained 0.4 percent yesterday. The Stoxx Europe 600 Index climbed 1 percent.

Easing Forecasts
All 14 economists in a Bloomberg News survey predict additional easing when Japan’s central bank releases new inflation forecasts on April 27. Most expect an increase in asset purchases ranging from 5 trillion yen ($61.3 billion) to 10 trillion yen.

BOJ Governor Masaaki Shirakawa and his board unexpectedly expanded bond purchases by 10 trillion yen and set a 1 percent inflation goal on Feb. 14 before leaving stimulus policies unchanged at its next two meetings.

The central bank is “committed” to monetary easing, Shirakawa said last week in New York. Deputy Governor Kiyohiko Nishimura said on April 18 the BOJ is “committed to implementing additional easing measures, if deemed necessary.”

The yen has dropped 8.5 percent this year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar is the second-worst, having declined 2.4 percent.

Dollar ‘Restrained’
The Federal Open Market Committee plans to release its policy statement later today. It will publish its forecasts for interest rates, growth, inflation and unemployment.

“We don’t expect the FOMC outcome to mark an end to speculation of more QE,” Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB, wrote in an e- mailed note, referring to the Fed’s asset purchases or so-called quantitative easing.

“In this respect, the U.S. dollar will continue to be restrained until there is more clarity on the economy, and in turn, Fed thinking,” he wrote.

Orders placed with U.S. factories for durable goods probably fell 1.7 percent in March after rising a revised 2.4 percent the previous month, according to the median estimate in a Bloomberg poll. The Commerce Department will release the data today. A report yesterday showed new homes sold at an annual rate of 328,000 last month from a revised 353,000 pace in February. Economists predicted a rate of 319,000.

U.S. central bankers bought $2.3 trillion of bonds in two rounds of purchases between December 2008 and June. They’ve also said they will probably keep their target for overnight lending between banks at almost zero at least until late 2014.

Cattle futures rebounded after falling by the limit on the Chicago Mercantile Exchange yesterday. The U.S. Department of Agriculture said a cow in California tested positive for bovine spongiform encephalopathy, a brain-wasting disease.

Dutch Austerity
Europe’s shared currency held gains versus its U.S. and Japanese counterparts before a Dutch proposal on austerity measures is sent to parliament today for debate this week.

Prime Minister Mark Rutte told lawmakers in The Hague yesterday that the need to adopt reforms “hasn’t diminished” after Geert Wilders’s Freedom Party pulled out of budget talks. He spoke one day after he tendered his Cabinet’s resignation to Queen Beatrix. New elections may be “possible” on Sept. 12, Rutte said.

 

[Muthukali]

Aussie Dollar Remains Higher; N.Z. Swaps Drop After RBNZ Meeting

Australia’s dollar remained higher after gaining yesterday as Asian stocks extended a global rally, boosting demand for riskier assets.

New Zealand’s two-year swap rate slid to the least in 12 weeks after the nation’s Reserve Bank left interest rates at a record low. Demand for the Australian and New Zealand currencies was supported after Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank stands ready to introduce more stimulus measures if necessary.

“Global sentiment has been strong for the past two days, and that’s helped high-beta currencies like the Aussie and kiwi rise,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. The Reserve Bank of New Zealand meeting “was a bit more dovish than we would’ve expected, and we note that New Zealand interest rates have fallen, and that makes a lot of sense to us.”

Australia’s dollar was at $1.0361 at 10:27 a.m. in Sydney after having gained 0.4 percent to $1.0353 yesterday. New Zealand’s currency rose 0.3 percent to 81.54 U.S. cents. Two- year swap rates in the smaller nation slid as much as 9 1/2 basis points to 2.76 percent, the lowest since Feb. 2.

The MSCI Asia Pacific Index of shares advanced 0.6 percent after the MSCI All-Country World Index (MXWD) rose 0.9 percent yesterday. The Chicago Board Options Exchange Volatility Index (VIX), known as the VIX, dropped 7.1 percent to 16.82, its lowest close since April 5, indicating traders expect the U.S. stock market to be less volatile.

Central Bank Decision
The RBNZ left its official cash rate at 2.5 percent at a policy meeting today.

“The New Zealand dollar has stayed elevated despite recent falls in commodity prices,” Governor Alan Bollard said in a statement. “Should the exchange rate remain strong without anything else changing, the bank would need to reassess the outlook for monetary policy settings.”

New Zealand’s dollar has gained 2.7 percent this year, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

“Today’s comments suggest that the RBNZ may now be comfortable with a strong New Zealand dollar, should N.Z. commodity prices recover and domestic growth pick up,” Hamish Pepper and Olivier Desbarres, currency strategists in Singapore at Barclays Plc, wrote in a research note.

Fed policy makers upgraded their U.S. growth projection this year while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014. They now forecast the economy will grow as much as 2.9 percent, compared with a January estimate of 2.7 percent.

“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” Bernanke said at a press conference following a two- day meeting of the Federal Open Market Committee.

 

[Muthukali]

Dollar Stays Lower on Fed Easing Speculation Before GDP

The dollar remained lower against its peers before data tomorrow that may show U.S. growth slowed in the first quarter, fueling speculation the Federal Reserve will consider additional stimulus.

The euro traded within 0.1 percent of a three-week high as Asian stocks extended gains to a second day after Fed Chairman Ben S. Bernanke said he’s prepared to “do more” to spur the economy, boosting demand for higher-yielding assets. Demand for the yen was limited amid speculation the Bank of Japan (8301) will add to easing measures at its meeting tomorrow. New Zealand’s dollar rose even after the nation’s Reserve Bank left interest rates at a record low.

“Certainly, the underlying trend in the dollar is softness,” said Andrew Salter, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney. “Bernanke’s statement was perceived to be dovish by the market.”

The dollar traded at $1.3229 per euro at 9:29 a.m. in Tokyo from $1.3217 at the New York close yesterday, when it touched $1.3237, the weakest since April 4. The U.S. currency was little changed at 81.35 yen. The yen bought 107.61 per euro from 107.51, after sliding 0.2 percent yesterday.

The MSCI Asia Pacific Index of shares advanced 0.5 percent today. The Standard & Poor’s 500 Index (SXXP) of U.S. stocks gained 1.4 percent yesterday, while the MSCI World Index climbed 1.1 percent.

U.S. first-quarter gross domestic product, the value of all goods and services the nation produced, rose at a 2.5 percent annual rate after advancing 3 percent in the previous three months, according to the median forecast of economists surveyed by Bloomberg News before the Commerce Department releases the figure tomorrow.

Do What’s Needed
“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” Bernanke said yesterday at a press conference following a two-day meeting of the Federal Open Market Committee in Washington.

Fed policy makers upgraded their forecasts for growth and unemployment this year while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014. The central bank bought $2.3 trillion of bonds in two rounds of asset purchases or so-called quantitative easing between December 2008 and June 2011.

In Japan, central bankers are set to hold a monetary policy meeting. All 14 economists in a Bloomberg survey predict additional easing tomorrow when the bank releases new inflation forecasts. Most expect an increase in asset purchases ranging from 5 trillion yen ($61.5 billion) to 10 trillion yen.

BOJ Easing
BOJ Governor Masaaki Shirakawa and his board unexpectedly expanded bond purchases by 10 trillion yen and set a 1 percent inflation goal on Feb. 14 before leaving stimulus policies unchanged at the next two meetings. The central bank is “committed” to monetary easing, Shirakawa said last week in New York.

“If the BOJ does increase the amount of quantitative easing, that should be negative for the yen. It should be positive for the economy,” ANZ’s Salter said.

The yen has dropped 8.6 percent this year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar is the second-worst, having declined 2.7 percent. The so-called kiwi has gained 2.7 percent, the best performance.

N.Z. Swaps Drop
New Zealand’s two-year swap rate slid to the least in 12 weeks after the central bank left its official cash rate at 2.5 percent at a policy meeting today, signaling the nation’s rising currency may delay an increase in borrowing costs.

The RBNZ meeting “was a bit more dovish than we would’ve expected, and we note that New Zealand interest rates have fallen, and that makes a lot of sense to us,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender.

New Zealand’s currency rose 0.2 percent to 81.52 U.S. cents. Two-year swap rates in the smaller nation slid as much as 9 1/2 basis points to 2.76 percent, the lowest since Feb. 2.

 

[Muthukali]

Yen Gains After European Confidence Slides; Pound Rises

The yen gained for the first time in three days against the euro and dollar as a report showed economic confidence in the euro region fell in April, boosting demand for the safety of the Japanese currency.

The pound strengthened to the highest level in more than seven months against the greenback after U.K. consumer confidence climbed more than economists estimated. The yen reversed two days of declines even before the Bank of Japan (8301) meets tomorrow, with economists saying policy makers will unveil new easing measures. The implied volatility of three-month options for Group of Seven currencies fell to its lowest level in more than four years.

“Yen direction will remain mainly driven by safe-haven demand linked to developments in the euro zone,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “The yen’s sell off on the back of BOJ easing speculation was overdone. If the euro-zone debt crisis continues to reintensify, then it is likely the yen will strengthen further despite ongoing easing.”

The yen gained 0.5 percent to 80.91 per dollar at 7:43 a.m. New York time. It strengthened 0.6 percent against the euro, to 106.92. The U.S. currency was little changed at $1.3215 per euro after reaching $1.3263, the weakest level since April 3.

The Japanese central bank is due to release new inflation forecasts, and will probably announce an increase in asset purchases ranging from 5 trillion yen to 10 trillion yen, economists surveyed by Bloomberg said.

EC Confidence
The euro fell against the yen and erased an advance against the dollar after the European Commission in Brussels said an index of executive and consumer sentiment in the 17-nation euro area slid to 92.8 from a revised 94.5 in March. The median estimate of 29 economists surveyed by Bloomberg News was for a drop to 94.2 from a previously reported 94.4.

The JPMorgan Volatility Index of currencies slid to 9.25 percent, which would be the lowest close since 2007. The 10-year average is 10.6 percent.

Lower volatility makes investments in currencies of nations with higher benchmark rates more attractive because the risk in such trades is that market moves will erase profits.

A report due tomorrow will show U.S. growth slowed, according to a survey of economists, fueling bets the Federal Reserve will consider additional stimulus this year.

U.S. gross domestic product rose at a 2.5 percent annual rate in the first quarter after advancing 3 percent in the previous three months, according to the median forecast of economists surveyed by Bloomberg News.

Fed Announcement
The greenback fell after U.S. Fed Chairman Ben S. Bernanke yesterday repeated a plan to keep borrowing costs low until at least late 2014.

“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” Bernanke said yesterday at a press conference following a two-day meeting of the Federal Open Market Committee in Washington.

The dollar may be weaker because of “some disappointment that the Fed did not offer any change in the expected interest- rate profile,” said Audrey Childe-Freeman, global head of currency strategy at JPMorgan Chase & Co.’s JPMorgan Private Bank in London. “Softer GDP data tomorrow would confirm that policy normalization remains a distant prospect. This is dollar negative.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.1 percent to 79.006, after dropping to 78.823, the lowest level since April 3.

Pound Strength
The pound climbed for a ninth day against the dollar after a Nationwide Building Society index of sentiment rose to 53 in March from 44 the previous month.

The U.K. currency gained 0.1 percent to $1.6174, after touching $1.6207, the highest level since Sept. 2. It was 0.1 percent stronger at 81.66 pence per euro.

Sterling may strengthen to $1.6425 should it end the day’s trading above a key level of so-called resistance, Commerzbank AG said, citing trading patterns.

“Pound-dollar is starting to erode the $1.6167 resistance,” Karen Jones, head of fixed-income, commodity and currency technical analysis in London, wrote in a note to clients. “This is the October 2011 high and the 61.8 percent retracement of the move seen 2011-2012,” she wrote, citing Fibonacci analysis.

Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. Resistance refers to an area on a chart where technical analysts anticipate orders to sell a security to be clustered.

 

[Muthukali]

Aussie, Kiwi Fall as Spain’s Rating Cut Saps Risk Demand

The Australian and New Zealand dollars declined after Standard & Poor’s downgrade of Spain highlighted concerns that Europe’s debt crisis is deepening, sapping demand for riskier assets.

The so-called Aussie and kiwi ended two-day gains against the U.S. dollar after S&P cut Spain’s long-term credit rating two levels to BBB+ yesterday from A, saying the outlook is negative as the country’s recession undermines efforts to reduce the budget deficit. Australia’s currency also slid on speculation the Reserve Bank will lower interest rates next week. The Bank of Japan (8301) sets monetary policy today.

“There is concern over Europe with Spain’s downgrade and bond yields going back up,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The Aussie and kiwi are still vulnerable to the downside. Inflation data that was pretty weak and the ongoing euro-zone crisis are the reasons why the RBA would cut rates.”

Australia’s dollar lost 0.1 percent to $1.0379 at 1:06 p.m. in Sydney from the close in New York yesterday. The currency fell 0.2 percent 83.96 yen. The Aussie is headed for a 0.3 percent gain this month against the U.S. currency, after falling 3.6 percent in March.

New Zealand’s dollar dropped 0.1 percent to 81.35 U.S. cents, and slid 0.3 percent to 65.78 yen.

S&P 500 Index futures declined 0.4 percent after the underlying stocks gauge gained 2.4 percent in the past three days. The MSCI Asia Pacific Index (MXAP) of stocks, set for a 1.7 percent drop this month, was little changed.

RBA Policy
Traders are pricing in a certainty that the Reserve Bank of Australia will cut its benchmark rate from 4.25 percent at its next meeting on May 1, according to a Credit Suisse Group AG gauge based on swaps. The central bank has signaled that it may be willing to lower rates in a bid to bolster the economy, provided inflation remains in check.

There are 5.99 puts to sell the CurrencyShares Australian Dollar Trust (FXA) for every call to buy the security, according to data compiled by Bloomberg. The ratio reached an all-time high of 6.03 on April 20. The exchange-traded fund, which tracks the U.S. dollar value of the Aussie, has dropped 3.6 percent from a nine-month high on Feb. 7.

“All the economic metrics are pointing to an interest rate cut, which is reducing the attractiveness of the Aussie,” Alex Tedder, who helps manage $13 billion in global stocks at American Century Investments in New York, said in an April 25 phone interview. “They have the ability to cut rates, and they will use it.”

Australia’s government bonds rose, pushing the yield on the 10-year security down six basis points, or 0.06 percentage point, to 3.67 percent. Five-year yields fell as much as 9 1/2 basis points to 3.094 percent, matching a record low.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped five basis points to 2.71 percent, the lowest since Feb. 1.

 

[Muthukali]

Rupee Falls to Four-Month Low

MUMBAI—The Indian rupee sank to a four-month low against the U.S. dollar early Thursday amid growing concerns about the country's gaping budget and trade deficits and worries capital inflows will remain weak due to slowing domestic economic growth.

he U.S. dollar was trading at 53.19 rupees in mid-morning trade. Earlier in the day, the dollar was up at 53.27 rupees, the local currency's lowest level in four months. Weakness in the rupee took a toll on India's stock market, with the 30-share Sensex losing 104 points or 0.6% to trade at 17,197.63 by mid-morning.

India's current account deficit, currently at about 4% of gross domestic product, has shaken investors, pushing Standard & Poor's last month to warn that it may downgrade India's long-term debt to junk status if things don't improve.

The deficit, which reflects that imports are outpacing exports, has been fueled by higher oil import costs. The government's burgeoning budget deficit, caused by large subsidies on fuel and massive welfare program spending – coupled with slowing economic growth - has added to investor concern.

The economy grew 6.9% in the year to March 31, below rates of almost 8% in recent years amid signs foreign investors are turning their backs on India due to impatience over the slow pace of business reforms.

"A turnaround in the rupee is likely to be delayed if the recovery in India's growth disappoints or crude prices gain more than expected in the fiscal second half," Standard Chartered Bank STAN.LN +0.93% said in a report.

For now, there's few signs of a turnaround in India's external trade picture. Data out earlier this week added to pressure on the local currency Thursday, analysts said.

On Tuesday, the government reported that India's merchandise exports fell 5.7% to $28.7 billion in March year-on-year. Imports grew 24.2% on-year to $42.6 billion, leading to a trade deficit in March to $13.9 billion.

Higher imports means India is buying more dollars, whereas lower exports reduces the supply of dollars in India.

Abhishek Goenka, chief executive officer of Mumbai-based India Forex Advisors Pvt., said Indian importers were buying up dollars now expecting further weakness in the rupee in the near future, exacerbating pressure on the local currency. "That sort of fear thing is coming in the market," Mr. Goenka said.

The Reserve Bank of India's decision not to intervene aggressively in currency markets has added to importers' fears of further weakness, he added.

The central bank last month cut its key interest rate by half a percentage point to 8%, its first cut in three years, in a bid to boost economic growth. But the bank also cautioned that it might not have room to cut rates much further in months ahead due to lingering concerns about inflation, which remains around 7%-8%.

Some analysts are now saying they central bank may have been too quick to loosen its monetary policy.

India relies on imports for 80% of its oil needs and a sharp rise in global crude prices could balloon the trade deficit and add to inflationary pressure later this year, a risk flagged in the HSBC Manufacturing PMI data for April released Wednesday.

The seasonally adjusted HSBC Purchasing Managers' Index, prepared by Markit, rose to 54.9 in April from 54.7 in March, after slowing for two consecutive months.

Leif Eskesen, chief economist for India and Southeast Asia at HSBC, said inflation accelerated with both output and input prices rising at a quicker pace in April.

"This suggests that upside risks to inflation remain and that the Reserve Bank of India's rate cut could turn out to have been premature and too aggressive," Mr. Eskesen said.

Kumar Rachapudi of Barclays Capital says the fundamental picture for the rupee remains negative given the weak trade data. A poor global economic picture - with the deepening euro-zone debt crisis and a shaky recovery in the U.S. -- have added to pressure on the rupee as investors look for U.S. dollar safe-haven investments.

"In the near term, there are pressures as (the) global backdrop remains weak and portfolio flows are muted, creating a pressure on the rupee," he said. "Further depreciation in the rupee will be due to a broader dollar strength and a sharp decline in the euro from the current levels," he adds.