Yen Rises Against Higher-Yielding Currencies on Slowdown

The yen strengthened against higher- yielding currencies such as the Australian and New Zealand dollars as signs the global economic slowdown is deepening boosted demand for safer assets.

Japan’s currency climbed to five-week highs versus both the Aussie and kiwi after reports showed manufacturing in the euro area and China contracted in August. Australia’s dollar dropped to the weakest since July versus the greenback after retail sales in the nation fell. Federal Reserve Chairman Ben S. Bernanke said last week a third round of bond purchases, or quantitative easing, shouldn’t be ruled out to spur growth.

“The dollar is out of favor on QE risk from the Fed, so that leaves the yen as the only proper safe-haven alternative,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There was generally a risk-on mood during most of August and I think there may be a little recoiling from that this week.”

The yen appreciated 0.9 percent to 80.20 per Australian dollar at 5:15 p.m. London time after climbing to 80.07 yen, the strongest since July 25. Japan’s currency gained 0.8 percent to 62.48 per New Zealand dollar after reaching 62.38, the highest level since July 26.

The yen was little changed at 98.68 per euro and 78.28 per dollar. The euro gained 0.1 percent to $1.2597.

U.S. financial markets are closed today for the Labor Day national holiday.

‘Grave Concern’

An index of manufacturing in the euro area climbed to 45.1 in August from 44 in July, Markit Economics said, still below the level of 50 that shows a contraction. A Chinese purchasing managers’ index of manufacturing compiled by HSBC Holdings Plc and Markit dropped to 47.6 last month, from 49.3.

The yen has appreciated 7.2 percent in the past six months as the European debt crisis worsened, according to Bloomberg Correlation-Weighted Indexes. The euro dropped 3.1 percent, and the dollar rose 2.1 percent.

Bernanke told central bankers and economists at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming, on Aug. 31 that “nontraditional policies” shouldn’t be ruled out to boost growth and reduce unemployment, which he called a “grave concern.”

The U.S. Labor Department’s monthly jobs report on Sept. 7 will show employers added 125,000 workers last month, compared with 163,000 in July, according to another Bloomberg survey. Unemployment will remain at 8.3 percent, according to the estimates. The jobless rate has stayed at or above 8 percent since February 2009.

‘Heighten Expectations’

“If the jobs numbers come in weak, that would significantly heighten expectations of QE3,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co. in Tokyo. “The dollar may test lower over the near term.”

Australia’s dollar weakened against all but one of its 16 major peers after the government said retail sales dropped the most in almost two years in July. The so-called Aussie also slid after manufacturing shrank in China, the nation’s largest trading partner.

“The Aussie dollar had double bad news,” said Audrey Childe-Freeman, head of foreign-exchange strategy at Bank of Montreal (BMO) in London. “The currency has looked increasingly vulnerable in the past few weeks and this is continuing that.”

The Australian dollar fell 0.7 percent to $1.0248 after dropping to $1.0232, the lowest level since July 25.

Kiwi Declines

The New Zealand dollar also weakened, sliding 0.6 percent to 79.84 U.S. cents.

The so-called kiwi may drop to a three-month low after breaking below its 200-day moving average last week, Commerzbank AG said, citing trading patterns.

The currency is poised to fall to 74.58 U.S. cents, the weakest since June after breaking below the moving average at 80.01 cents, technical analysts Karen Jones and Axel Rudolph in London, wrote in a note to clients today. The kiwi may find initial support at previous lows of 79.69 and 79.28, they said.

The pound rose for a second day against the dollar after a survey showed U.K. manufacturing shrank less than economists forecast last month.

A gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, rose to 49.5 from a revised 45.2 in July, Markit said. The median forecast of economists in a Bloomberg survey was for an increase to 46.1.

“The pound has rallied at the margin following this morning’s manufacturing data,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “Recently, there have been some slightly better numbers coming from the U.K. but at best the economy is going sideways.”

The U.K. currency advanced 0.2 percent to $1.5890, and was little changed at 79.27 pence per euro.

Sweden’s krona depreciated after a report showed manufacturing shrank at the fastest pace since May 2009.

The purchasing managers’ index dropped to a seasonally adjusted 45.1 for August from 50.6 in July, Stockholm-based Swedbank AB (SWEDA) said.

The krona weakened 1.1 percent to 8.4271 per euro, and slipped 1.0 percent to 6.6897 per dollar.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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