Dollar Falls to 15-Year Low Versus Yen on Fed Policy Outlook

The dollar depreciated below 81 yen, a 15-year low, and reached its weakest since January against the euro before reports likely to fuel speculation the Federal Reserve will ease monetary policy further.

The Dollar Index, which tracks the dollar against the currencies of six major trading partners, reached a 10-month low before data forecast to show slower gains in U.S. wholesale costs and consumer prices. Singapore’s dollar rose to a record as the island’s central bank said it will widen the currency’s trading band to curb inflation. Australia’s dollar reached the highest since it began trading freely in 1983 as Asian stocks extended a global rally. The U.S. and Canadian dollars reached parity, the greenback’s weakest level since April, as minutes this week suggested the Fed may pump more cash into the economy.

“The market is in a state of anxiety over what’s likely to come from the Fed,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Dollar holders are very nervous based on the Fed minutes, which suggest more unconventional policy measures. That could result in them keeping their foot on the printing press for longer and harder than maybe anyone had thought. Everyone seems to be selling the dollar because of the Fed view.”

The dollar fell 0.8 percent to 81.13 yen at 6:37 a.m. in New York from 81.81 yen yesterday, and touched 80.89 yen, the weakest since April 20, 1995. It slid to $1.4069 per euro from $1.3961 and earlier reached $1.4122, the lowest level since Jan. 26. The euro traded at 114.14 yen, from 114.20 yen.

There’s a 78 percent chance the yen will equal the record 79.75 per dollar by the end of this quarter, according to options trading monitored by Bloomberg. The currency pair reached that level on April 19, 1995.

Dollar Index

The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies including the euro, yen and Swiss franc, dropped to 76.259, the lowest since Dec. 14, before trading at 76.524. The dollar weakened to 99.81 Canadian cents before trading at C$1.0018 from C$1.0033 yesterday. The U.S. currency sank to a record low of 0.9463 Swiss francs before trading at 0.9515, from 0.9585 yesterday.

Rising prices for Canada’s commodity exports and the prospect of becoming the first Group of Seven nation to balance its budget helped propel the nation’s currency, known as the loonie, to U.S. dollar parity for the first time in almost six months. The loonie is up 2.8 percent over the past 30 days versus the greenback, which has dropped against all of its 16 most-traded counterparts during that period.

Pressure on China

China’s yuan advanced to its strongest level against the dollar since 1993 on speculation policy makers will yield to intensifying international pressure to let the currency appreciate faster.

The Chinese central bank set the reference rate at 6.6582 per dollar, the highest level since a peg was dropped in July 2005. U.S. Senate Finance Committee Chairman Max Baucus said yesterday a bill punishing China over the value of the yuan may well pass in the U.S. Senate, with Congress submitting it to President Barack Obama for his signature.

“It’s partly due to the pressure on the international front,” said Emmanuel Ng, a currency strategist at Oversea- Chinese Banking Corp. in Singapore. “The broad dollar weakened yesterday and today. We have a combination of two factors.”

The yuan rose 0.2 percent to 6.6508 per dollar, according to the China Foreign Exchange Trade System. It touched 6.6503, the strongest level since the central bank unified the official and market exchange rates at the end of 1993.

Bernanke Speaks

Fed Chairman Ben S. Bernanke will speak tomorrow on monetary policy objectives and tools in Boston. He said on Oct. 4 that the central bank’s first round of large-scale asset purchases aided the economy and that more quantitative easing is likely to help further.

Gains in prices paid to producers slowed to 0.1 percent after a 0.4 percent gain in August, economists estimated the Labor Department will report today.

Consumer prices rose 0.2 percent in September after a 0.3 percent gain the prior month, according to the median forecast of economists surveyed by Bloomberg before tomorrow’s report. Prices excluding food and energy likely increased in September for a sixth month at an annual rate of 0.9 percent, matching the slowest year-over-year rate of gains since 1966.

“We are looking at the prospect of further quantitative easing in November or December,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “You’re not likely to see any dollar strength” until the Fed next meets, he said.

The Dollar Index will drop by at least 3 to 5 percent and by as much as 10 to 15 percent into the year’s end if the Fed announces an increase in purchases of government debt, Carr said. The central bank’s next two-day meeting starts Nov. 2.

Singapore’s MAS

Singapore’s dollar gained for a second day after the Monetary Authority of Singapore said it will seek a faster appreciation of its currency to temper inflation even as the economy grows at a slower and more sustainable pace.

“This is effectively monetary tightening and reflects concerns about domestic inflation,” said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. “The steeper slope will allow a faster pace of appreciation. The wider band will deal with the increased volatility in the market.”

Singapore’s currency rose 0.5 percent to S$1.2964 versus its U.S. counterpart, after earlier appreciating as much as 1 percent to S$1.2893, the strongest since 1981 when Bloomberg began compiling data.

Emerging-Market Currencies

Emerging-market currencies are likely to rise against the dollar as consumer demand in those nations is taking over from U.S. household spending as a major driver of the world economy, according to Curtis Mewbourne, a managing director at Newport Beach, California-based Pacific Investment Management Co.

Investors seeking to benefit from growth in developing markets may want to look at investing in local-currency government bonds while dollar-denominated bonds issued by emerging-market corporations also may be attractive, he wrote on the firm’s website.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies outside of Japan, has advanced 4.6 percent this year and today reached as much as 115.81, its highest since April 2008. The MSCI Asia Pacific Index climbed 2 percent to its highest in two years.

Aussie Inflation

Australia’s currency gained to the most since exchange controls were removed in 1983 as monthly consumer inflationary expectations for October rose to 3.8 percent from 3.1 percent, according to an e-mailed report from the Melbourne Institute for Economic and Social Research. Australia’s central bank aims to keep inflation between 2 percent and 3 percent.

Benchmark rates of 4.5 percent in Australia and 3 percent in New Zealand, compared with rates as low as zero in the U.S. and Japan, attract investors to the South Pacific nations’ higher-yielding assets.

Australia’s currency rose as high as 99.94 U.S. cents before trading at 99.40 cents, from 99.05 cents yesterday. The so-called Aussie fell to 80.67 yen from 81.03 yen.

New Zealand’s dollar slipped to 75.96 U.S. cents from 76.06 cents yesterday after earlier touching 76.44 cents, the most since July 2008. It declined to 61.64 yen from 62.22 yen.

The Aussie may peak at $1.05 and stay above parity against the greenback until September 2011 as the Fed holds down rates, National Australia Bank Ltd. said in a note to clients.

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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