Yen Rises to 15-Year High as U.S. Housing Plunge Adds to Economic Concern
Aug. 24 (Bloomberg) -- Shaun Osborne, chief currency strategist at TD Securities Inc., talks with Bloomberg's Julie Hyman about the outlook for Japan's yen. The yen advanced to the strongest in 15 years versus the dollar and to its highest level against the euro since 2001 even after Prime Minister Naoto Kan told reporters “steep currency gains are undesirable.” (Source: Bloomberg)
The yen advanced to the strongest in 15 years against the dollar after data showing a drop in U.S. sales of existing homes boosted concern the economy is slowing.
Japan’s currency climbed to its highest level against the euro since 2001 even after Prime Minister Naoto Kan told reporters “steep currency gains are undesirable.” The dollar weakened versus the euro for much of the day amid speculation the housing data may spur the Federal Reserve to pump more money into the economy. The Swiss franc touched a record high against the euro, while the New Zealand dollar tumbled versus the yen.
“The market is putting increased emphasis on these risks to future growth, and this kind of data only further heightens that speculation and those concerns,” said Robert Lynch, currency strategy head at HSBC Holdings Plc in New York. “It ultimately is going to be more bullish for the yen than anything else.”
The yen appreciated 1.5 percent to 83.90 per dollar at 5 p.m. in New York, from 85.16 yesterday, and touched 83.60, the strongest level since June 1995. The Japanese currency rose 1.7 percent to 105.97 per euro, from 107.79, and reached 105.44, the strongest level since July 2001. The dollar gained 0.2 percent to $1.2627 per euro, from $1.2657, after earlier falling as much as 0.5 percent and advancing 0.6 percent to $1.2588, the strongest since July 13.
The euro reversed gains versus the greenback late today as Standard & Poor’s cut Ireland’s long-term sovereign-debt rating to AA- from AA. The currency had advanced versus the dollar amid speculation the U.S. housing data may spur the Federal Reserve to pump more money into the economy.
New Zealand Dollar
New Zealand’s dollar, nicknamed the kiwi, touched a 13- month low against the yen after the U.S. housing data fueled investors’ move away from currencies linked to global growth and into those considered havens. The kiwi dropped 1.8 percent to 59.09 yen and reached 58.66 yen, the weakest since July 2009.
Canada’s dollar fell for a fourth straight day, touching the lowest level in seven weeks as crude oil, the nation’s biggest export, dropped. The currency depreciated 0.8 percent to C$1.0606 per U.S. dollar in Toronto after reaching $1.0665. The Mexican peso touched 13.029 per dollar, its weakest level since July 7, after a slower-than-forecast rise in the country’s retail sales. The U.S. is the biggest trading partner of both Canada and Mexico.
“There’s nothing pointing positive for Canada at the moment,” John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, said by phone from Toronto. “Everybody is scared of their shadows out there.”
‘More Pessimistic’
The franc touched 1.3049 per euro, breaking the record of 1.3074 set on July 1 and adding to pressure on the Swiss central bank to stem its gains. The currency may strengthen to 1.28 per euro as signs that the global economic recovery is faltering boost demand for assets perceived as a refuge, said Mansoor Mohi-Uddin, head of currency strategy in Singapore at UBS AG.
“We expect it to go to that level sooner rather than later,” Mohi-Uddin said in an interview. “Global policy makers are becoming more pessimistic about the global outlook. Safe- haven currencies such as the dollar, the yen and the franc will stay in demand.”
The euro earlier erased losses against the greenback after dropping briefly below $1.2606, the 50 percent Fibonacci retracement level of its advance from a more-than-four-year low of $1.1877 on June 7 to a three-month high of $1.3334 on Aug. 6.
The yen advanced as National Association of Realtors data showed sales of previously owned homes in the U.S. slumped 27.2 percent in July, more than double a Bloomberg survey’s forecast.
Quantitative Easing
“Market reaction to housing data suggests quantitative- easing fears will dominate” speculation, Citigroup Inc. analysts led by Tom Fitzpatrick, New York-based chief technical strategist, wrote in a note to clients. In quantitative easing, a central bank buys assets, putting new money into the economy.
Treasuries rallied, driving the two-year note yield to a record low of 0.4542 percent and pushing 10-year yields below 2.5 percent for the first time since March 2009. Stocks fell, with the Standard & Poor’s 500 Index dropping 1.5 percent.
“It’s just dreadful by any measure -- not only is the housing market weaker than we expected it was going to be, but it really begs further attention from the White House and Congress,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., world’s largest custodial bank, with more than $20 trillion in assets under administration.
The dollar will trade in the range of 83.50 yen to 86.50 yen through the end of the month as volatility remains high, Woolfolk forecast.
‘Closely Monitor’
The Bank of Japan may take more steps to loosen monetary policy such as increasing liquidity and reducing interest rates, Nikkei English News reported, without citing sources. The bank’s policy board may meet sooner than the session planned for Sept. 6-7, Nikkei said.
Japanese Prime Minister Kan told reporters in Tokyo today he wants to “closely monitor” the foreign-exchange market. The yen has advanced 17 percent this year, the most among its developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indices.
“If they do choose to intervene it’s going to be a very expensive and long-fought battle for the Bank of Japan, and one that’s ultimately not guaranteed to succeed,” Shaun Osborne, chief currency strategist at Toronto Dominion Bank’s TD Securities in Toronto, said in an interview on Bloomberg Television. Central banks intervene when they buy or sell currencies to influence exchange rates.
The yen may test the 80 level versus the dollar, Osborne said. If the currency breaks below that, the chances of intervention will increase.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Mary Childs in New York at Mchilds5@bloomberg.net
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