Dollar Weakens Against Yen on Fed Stimulus Bets; Kiwi Advances

The dollar fell for a second day versus the yen on speculation that the Federal Reserve Chairman Ben S. Bernanke won’t rush to increase interest rates after the U.S. central bank winds down its bond-buying stimulus program.

The Bloomberg Dollar Index approached the lowest level in a month after the Beijing News reported that China’s premier Li Keqiang said 7 percent growth is the minimum possible, damping demand for the safest assets. The Australian and New Zealand dollars advanced for a third day as rising commodity prices and a drop in volatility gave support to the higher-yielding assets. Indonesia’s rupiah fell the most since 2011.

“The market is getting used to the idea that tapering is not tightening,” said Jane Foley, senior currency strategist at Rabobank International in London. “The main message is accommodation and that’s a bearish factor for the dollar.”

The U.S. currency fell 0.2 percent to 99.44 yen at 9:14 a.m. London, rising from 99.15 yen, the lowest level since July 17. It was little changed at $1.3196 per euro after yesterday touching $1.3218, the weakest since June 21. The yen gained 0.1 percent to 131.25 per euro.

Home prices in the U.S. rose 0.8 percent in May, following a 0.7 percent advance the previous month, which was the smallest increase since January, the Federal Housing Finance Agency will report today, according to economists in a Bloomberg News survey.

Housing Market

Previously owned home sales in the U.S. slid 1.2 percent in June to a 5.08 million annualized rate, the National Association of Realtors reported yesterday. The median forecast in a Bloomberg survey was for a 5.26 million pace.

“The housing market is directly linked to the job market, and Bernanke says hiring must improve before the Fed can reduce stimulus,” said Yuji Saito, the director of foreign-exchange at Credit Agricole SA (ACA) in Tokyo. “The Fed has succeeded in convincing markets there’s going to be quite some time between the end of tapering and the start of policy tightening,” pushing the dollar lower against the yen, he said.

The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, was little changed at 1,027.72 after falling yesterday to the lowest level since June 20. The index rose after Bernanke said in June the central bank’s bond purchases may slow this year and stop in mid-2014. It reached 1,056.33 earlier this month.

Fed Purchases

The Fed buys $85 billion of debt each month as part of its quantitative-easing stimulus to cap borrowing costs, a program that tends to debase the dollar. It has held the benchmark interest-rate target unchanged at between zero and 0.25 percent since 2008 to support the economy.

The dollar has risen 4.5 percent this year, matching the gain in the euro and lagging behind only the Swedish Krona among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen is the worst performer, having dropped 10 percent.

The Australian dollar added 0.1 percent to 92.57 U.S. cents. New Zealand’s currency gained 0.3 percent to 79.89 U.S. cents after earlier touching 80.09, the highest since June 19.

One-month volatility for the kiwi versus the U.S. dollar touched 11.5 percent, a level unseen since May 16. The equivalent rate for the Aussie dropped to as low as 11.1 percent, the least since May 30.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net.

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

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