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Euro Declines to a Two-Week Low as Region’s Economy Shrinks; Aussie Falls

The euro declined to a two-week low versus the dollar after a report showed the region’s economy contracted last quarter, adding to signs the European debt crisis is hampering global growth.

Australia’s dollar weakened to almost a six-week low against the dollar as Reserve Bank Deputy Governor Philip Lowe said the nation must be alert that the currency may be too strong. The yen gained for a fifth day against the 17-nation currency as more than 20 percent of Greece’s private creditors have agreed to debt restructuring. Norway’s krone and Canada’s dollar slumped as oil prices declined to a two-week low as the European Union offered to restart talks with Iran.

“Looking at the euro region gross domestic product in the context of the global economy, it reinforces the fact that we’re slowing,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “Growth is lingering in the background because people are so focused on Greece and central- bank headlines, but when you look at it from a broader perspective, that is going to weigh on the euro.”

The euro slid 0.8 percent to $1.3112 at 5:01 p.m. in New York, after touching $1.3103, the lowest level since Feb. 16. The shared currency dropped 1.6 percent to 106.07 yen, extending its decline in the past week to 2.2 percent. The dollar slipped 0.8 percent to 80.89 yen.

Aussie Falls

Australia’s dollar fell as much as 1.4 percent to $1.0525, weakest since Jan. 25, before trading at $1.0552. It declined 1.9 percent to 85.37 yen.

Australia’s dollar has gained 3 percent in the past six months, the best performer on the Bloomberg Correlation-Weighted Indexes which tracks 10 developed-nation currencies. The dollar has strengthened 4.6 percent, and the yen weakened 2.3 percent.

“It is possible for exchange rates to overshoot,” Lowe said in the text of a speech today in Sydney. “While the evidence of the past 30 years is that movements in the exchange rate have been an important stabilizing force for the Australian economy, the unusual nature of the current forces means that we need to watch things closely.”

The central bank left its benchmark rate at 4.25 percent yesterday and reiterated it has scope to ease monetary policy if needed.

Euro Pressure

The euro has been sold for six consecutive trading days, according to Bank of New York Mellon Corp.’s iFlow data. The pace of the outflows during the past four days has been twice as strong as the average for the past year, the data show.

“Investor mindset is such that they’re just shunning European-denominated assets,” said Samarjit Shankar, a managing director for the foreign-exchange group in Boston at BNY Mellon. “You see this spate of news flow coming out showing that leading policy makers around the world coming to terms with growth being at a premium.”

Norway’s krone fell against all its major counterparts and declined 1.6 percent to 5.7064 versus the dollar and weakened 0.8 percent to 7.4825 per euro. Canada’s dollar fell 0.7 percent, weakening to below parity, to C$1.0019. Both oil- exporting nations had seen their currencies rally as the European Union said it would cease oil imports from Iran starting in July.

Crude oil declined as much as 2.6 percent to $104.51 a barrel in New York, the lowest since Feb. 21. Catherine Ashton, the EU foreign policy chief, offered negotiations with Iran on behalf of China, France, Germany, Russia, the U.K. and the U.S.

Technical Developments

The euro may decline to a six-week low versus the dollar if the shared currency closes below $1.3171, according to Citigroup Inc. The level is a support drawn from a trend line from the Jan. 13 and Feb. 16 lows, Tom Fitzpatrick, chief technical analyst at Citigroup in New York said.

Europe’s gross domestic product shrank 0.3 percent from the third quarter, the region’s statistics office said today, confirming an initial estimate published on Feb. 15. Exports fell 0.4 percent and household spending declined 0.4 percent. The ECB will keep its benchmark interest rate t a record low 1 percent on March 8, a Bloomberg News survey showed.

The euro dropped as Greece struggles to complete a bond exchange with private investors by March 8 in order to receive a 130 billion-euro ($171 billion) bailout.

Yen Trend

The yen rose against the dollar for a second day as it rebounded from oversold levels for the first time in 13 days. Its 14-day relative strength index advanced above the 30 level, which indicates an asset may have declined too far, too quickly, for the first session since Feb. 16.

Demand for the Japanese currency was buoyed as the Standard & Poor’s 500 Index fell 1.5 percent and the MSCI World Index tumbled 2.1 percent.

The U.S. currency appreciated after Federal Reserve Bank of Dallas President Richard Fisher said investors should prepare for less U.S. monetary easing. Recent reports have highlighted that U.S. growth is broadening, with data yesterday showing service industries unexpectedly expanded last month at the fastest pace in a year.

“If the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage,” Fisher said yesterday in Dallas.

Intercontinental Exchange Inc.’s Dollar Index (DXY), used to track the greenback against the currencies of six major U.S. trading partners, gained 0.6 percent to 79.836.

The gauge may find it difficult to strengthen further without “clear euro-negative news,” according to Lloyds Bank Corporate Markets, citing trading patterns.

The Dollar Index last rose above 80 Feb. 16, when it reached 80.119, the highest level since Jan. 25.

-- With assistance from Keith Jenkins in London, Michael Heath in Sydney and Aki Ito in San Francisco. Editors: Paul Cox, Greg Storey

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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