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Dollar Declines Versus Yen on Drop in Durable Orders, Fed's Economic View
The dollar dropped from the highest level in almost two weeks versus the yen as orders for U.S. durable goods unexpectedly fell last month and the Federal Reserve said economic growth slowed in some areas.
Australia’s dollar slid against all of its major counterparts as the nation’s consumer prices rose in the second quarter less than economists forecast, raising speculation that the central bank will keep borrowing costs unchanged. The yen advanced against the New Zealand dollar and South African rand as a drop in U.S. stocks discouraged demand for riskier assets.
“Growth for the U.S. for the balance of the year is going to expand but at a slower pace,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. “That’s just another weight on the risk rally.”
The dollar decreased 0.5 percent to 87.45 yen at 4:01 p.m. in New York, from 87.90 yesterday, after touching 88.12, the highest level since July 15. The euro slid 0.6 percent to 113.57 yen, from 114.24, after rising to 114.74, the highest level since May 18. The euro traded at $1.2986, compared with $1.2996.
New Zealand’s dollar fell 1.2 percent to 63.69 yen and South Africa’s rand slid 0.8 percent to 11.89 yen as the drop in orders for durable goods deterred trades in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s target lending rate of 0.1 percent makes the yen popular for funding such transactions.
Drop in Stocks
The Standard & Poor’s 500 Index lost 0.7 percent as the U.S. economic data outweighed better-than-estimated corporate profits. The Stoxx Europe 600 Index slid 0.4 percent.
Bookings for U.S. items meant to last at least three years slid 1 percent last month after falling 0.8 percent in May, the Commerce Department reported today. The median forecast of 76 economists in a Bloomberg News survey was for a 1 percent gain.
Federal Reserve Chairman Ben S. Bernanke said in testimony before the Senate Banking Committee on July 21 that “the economic outlook remains unusually uncertain.”
The central bank underscored in its Beige Book business survey released today its view that the economic recovery, while still moving forward, is progressing at a slower pace than earlier in the year. Two of the Fed’s 12 districts reported the economy “held steady” and two said the expansion slowed.
“We’re seeing a little bit of risk aversion in the market,” said Melinda Burgess, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “There’s been a broad selling dollar theme over the last few weeks as U.S. data has been weak.”
Yen in 2010
The yen has advanced 10.3 percent this year in the biggest gain among developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 7.7 percent, while the dollar is up 2.9 percent.
The Bank of Japan board member Hidetoshi Kamezaki highlighted in a speech in Sapporo economic risks of a rising yen and said the bank will act to combat deflation, a more aggressive stance than his colleagues have indicated.
Nissan Motor Co. will boost output capacity in Mexico to about 700,000 vehicles a year and may consider increasing exports from the U.S. as the strong yen makes North American production more competitive.
The yen was headed for a 1.1 percent monthly gain versus the dollar and a 4.7 percent drop versus the euro. The dollar was poised for a 5.7 percent decrease against the euro.
The euro may advance about 4 percent against the yen after it breached a resistance level, according to Technical Alpha, a New-York based research company.
Outlook for Euro
The 16-nation euro may rally to a range of 117 to 118.80 yen over the next two months after closing yesterday above 113.85 yen, James Stellakis, the company’s founder, wrote in an e-mailed report. The euro hasn’t traded stronger than 118.80 yen since May, according to Bloomberg data.
A resistance level is an area on a chart where orders to sell a currency versus a counterpart may be placed, potentially blocking an advance.
The Australian dollar slid 1.1 percent to 89.23 U.S. cents and dropped 1.7 percent to 78.02 yen after the Bureau of Statistics said consumer prices rose 0.6 percent in the second quarter. The median estimate of 21 economists in a Bloomberg News survey was for a gain of 1 percent.
The Reserve Bank of Australia is forecast to keep the benchmark cash target at 4.5 percent on Aug. 3, according to the median estimate of 19 economists in a Bloomberg News survey.
New Zealand’s central bank will increase its target lending rate by a quarter-percentage point to 3 percent at 9 a.m. in Wellington tomorrow, according to all 14 economists in a Bloomberg News survey. The kiwi surged yesterday to a six-month high of 73.97 U.S. cents as traders bet borrowing costs would keep rising.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
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