Dollar Reaches 3-Month High Versus Euro; Kiwi Falls After RBNZ

The dollar reached a three-month high against the euro after a report showed U.S. retail sales in February increased the most in five month, bolstering the outlook for the world’s largest economy.

The 17-nation currency weakened as Italian borrowing costs increased at a debt sale. Japan’s currency rose versus the majority of its most-traded peers after the country’s largest opposition party said it would vote against deputy governor nominee Kikuo Iwata, who advocates more easing. New Zealand’s dollar extended losses after the central bank kept the country’s key interest rate at an all-time low. The South African rand fell to its lowest level versus the dollar in almost four years.

“The broad-based dollar strength is being driven by the positive numbers out of the U.S.,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a phone interview. “You’re starting to see that positive news in the U.S. is actually positive for the U.S. dollar, which hasn’t been the case in the past two years.”

The dollar appreciated 0.6 percent to $1.2961 against the euro at 5 p.m. in New York, reaching the strongest level since Dec. 10. It was little changed at 96.13 yen after earlier falling as much as 0.7 percent. The euro declined 0.5 percent to 124.59 yen.

Peso Strength

New Zealand’s dollar declined against the dollar for a second day after the Reserve Bank of New Zealand kept interest rates at a record low amid concern the nation’s worsening drought will weigh on the economy. At the RBNZ’s last policy meeting on Feb. 20, Wheeler said the central bank was prepared to intervene to “smooth the peaks” in the “overvalued” kiwi.

The so-called kiwi decreased 1 percent to 81.84 U.S. cents. The currency slipped 1 percent to 78.66 yen.

Mexico’s peso rose the most among major emerging-market currencies as the gain in U.S. retail sales boosted the outlook for exports a day after Standard & Poor’s raised its outlook on the Latin American nation to positive. It climbed 0.1 percent to 12.4324 after reaching 12.3697, its highest level since September 2011.

The Swedish krona declined the most against the greenback in one month after Deputy Governor Barbro Wickman-Parak said the currency’s appreciation hasn’t left the currency strong enough to threaten the central bank’s inflation target. The krona weakened 1.1 percent to 6.4269 per dollar.

Rand, Franc

The South African rand fell to its weakest level versus the dollar since April 2009 after retail sales growth slowed in January as job losses, high debt levels and inflation curbed consumer spending in Africa’s biggest economy. The currency depreciated 1 percent to 9.2614 per dollar.

Switzerland’s franc gained for a third day against the euro before the Swiss National Bank’s quarterly policy meeting tomorrow. The SNB may consider measures to stem deflation and boost growth, Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, wrote today in a note to clients.

The franc was little changed at 1.2344 per euro after posting its biggest gain since March 4.

Italy’s Debt

Italy sold 3.32 billion euros of a 2015 note at 2.48 percent, up from the 2.30 percent at the prior auction on Feb. 13. The Treasury sold 2 billion euros of securities maturing in 2028 at 4.90 percent versus with 4.805 percent when the bonds were sold via banks on Jan. 15.

The 1.1 percent advance in U.S. retail sales exceeded all projections in a Bloomberg survey and followed a revised 0.2 percent gain in January, Commerce Department figures showed today in Washington. The median forecast was for a 0.5 percent advance. Sales excluding the volatile categories of autos and gasoline rose 0.4 percent.

“We only see definitive signs of recovery in the U.S. and nowhere else,” Stephen Jen, managing partner at SLJ Macro Partners LLP, said at Bloomberg Link’s FX Debates in London.

The Your Party said today it will oppose Haruhiko Kuroda’s nomination for BOJ governor and Hiroshi Nakaso for deputy, while supporting Iwata. The Japan Restoration Party said it will endorse Kuroda and Iwata and oppose Nakaso. The main opposition Democratic Party of Japan said yesterday it opposed Iwata because he advocates changing the central bank law to give the government more control in setting policy.

Japan Politics

Current Governor Masaaki Shirakawa is due to step down along with his two deputies on March 19. Iwata may be confirmed without backing from the DPJ if Prime Minister Shinzo Abe can secure the support of the smaller opposition parties.

Options traders turned bullish on the yen versus the dollar yesterday for the first time since June 19, according to 25- delta option risk reversal rates. Traders are paying a 0.14 percent premium for yen calls, or the right to buy the Japanese currency versus its U.S. counterpart, relative to puts, which allow for sales.

The yen has slumped 7.8 percent this year, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 3.4 percent while the euro added 1.4 percent.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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