Dollar Strengthens Against Higher-Yielding Counterparts As Stocks Decline

The dollar strengthened against higher-yielding counterparts as Asian stocks declined after unrest in North Africa and the Middle East boosted oil prices, spurring concern the global recovery will falter.

The U.S. currency advanced versus 12 of its 16 major counterparts as Libyan rebels braced for renewed clashes with forces loyal to leader Muammar Qaddafi and Al Arabiya television reported Iranian protesters fought with security forces. New Zealand’s dollar fell to the lowest this year after Prime Minister John Key said he expected a cut in the nation’s benchmark rate. South Korea’s won declined toward a two-month low on concern oil above $100 may derail economic growth.

“Events in the Middle East are stinging risk trades,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. “We are seeing safe-haven flows in play in the foreign-exchange market.”

The dollar rose to $1.3770 per euro as of 8:14 a.m. in London from $1.3777 in New York yesterday, when it gained 0.2 percent. The New Zealand dollar slid 1 percent to 73.98 U.S. cents after earlier touching 73.84 cents, the least since Dec. 20, while the Australian dollar was 0.3 percent lower at $1.0102. The greenback was at 82.04 yen, from 81.86 yen. Japan’s currency traded at 112.93 per euro, from 112.77.

The MSCI Asia Pacific Index of shares declined 1.4 percent, the biggest drop in a week. Oil for April delivery rose for a second day, climbing as high as $100.64 a barrel in electronic trading on the New York Mercantile Exchange.

Libya, Oman, Yemen

Libyan rebels yesterday braced for possible renewed clashes with forces loyal to Qaddafi, who is attempting to regain control of major cities after the U.S. and European nations began planning for a no-fly zone. Oman deployed armored vehicles in the city of Sohar after protests on Feb. 28 while Yemeni demonstrators again took to the streets of Sana’a, the capital, to demand the ouster of President Ali Abdullah Saleh.

The dollar benefits as the world’s principal reserve currency. The yen typically strengthens in times of political, financial and economic turmoil. Japan’s trade surplus makes the currency attractive because it means the nation doesn’t have to rely on overseas lenders.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners such as the euro, rose 0.1 percent.

New Zealand’s currency depreciated against all of its 16 major counterparts as traders increased bets for rate reductions by the Reserve Bank of New Zealand.

Cut ‘Priced In’

“The market has priced in a cut from the Reserve Bank,” Key said in an interview today in Wellington. “That would probably be my expectation, that the Reserve Bank would cut.”

The nation is grappling with the human and financial toll of a 6.3-magnitude earthquake on Feb. 22 that struck the South Island city of Christchurch. It was the city’s second major temblor in six months and wrecked the central business district. Both quakes may have caused as much as NZ$20 billion ($15 billion) worth of damage, Key said this week.

“There have been rumors and talk of a rate cut,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Credit Agricole SA, a unit of France’s second- largest lender by total assets. “These comments helped reinforce these rumors and again provide a more negative bias for the New Zealand dollar.”

Swaps traders are certain New Zealand’s central bank will cut its benchmark by 25 basis points at its meeting on March 10, with some betting on a 50-basis point reduction, according to a Credit Suisse Group AG index.

South Korea’s Won

The won weakened as oil for April delivery rallied past $100 a barrel, spurring concern the Asian nation’s economic recovery may slow down.

South Korea, Asia’s fourth-largest crude importer, raised its energy alert level over the weekend and took nationwide conservation measures after an uprising curbed oil production in Libya, Africa’s third-biggest producer.

“Traders are buying the dollar against the won due to the risk from the Middle East crisis,” said Cliff Tan, head of emerging-markets currency research at Societe Generale SA in Hong Kong. “Equities are also going down and it’s all part of the same story, which is the oil prices due to the Middle East.”

The won declined 0.4 percent to 1,128.25 per dollar. It touched 1,135.45 on Feb. 23, the lowest level this year.

Declines in the euro were trimmed before a report that economists said will show producer prices accelerated in January, adding to the European Central Bank’s inflation concerns before a policy meeting tomorrow.

‘Talking Tough’

“The market is more interested in whether the ECB ends up talking tough and raising rates like the market has priced in,” said Tony Allen, global head of currency trading in Sydney at Australia & New Zealand Banking Group Ltd., Australia’s third- largest lender by market capitalization. The euro may find buyers near the $1.3750 level and “drift back up,” he said.

Factory-gate prices in the euro region gained 5.7 percent in January from a year earlier, the most since October 2008, according to the median forecast of economists in a Bloomberg survey. The European Union’s statistics office releases the report today.

The euro has risen against 13 of its 16 most-traded counterparts this year as traders raise bets the ECB will increase its key rates. European policy makers have kept the benchmark at a record low of 1 percent since May 2009.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.