Dollar Drops on Bets Fed Won’t Taper Buying Soon; Kiwi Rallies

The dollar fell versus 15 of its 16 most-traded counterparts on speculation the Federal Reserve will reassure investors that policy makers won’t be quick to raise interest rates at next week’s meeting.

New Zealand’s dollar jumped the most in more than a year versus its U.S. peer after central-bank Governor Graeme Wheeler said a removal of monetary easing “will likely be needed in the future.” The U.S. currency extended losses after the Wall Street Journal’s Jon Hilsenrath wrote that the Fed will probably keep its bond-buying program unchanged next week.

“Hilsenrath today has detailed thoughts that the Fed will remain with an easing bias, and that taper is talk, and only talk,” Douglas Borthwick, a managing director and head of foreign exchange at Chapdelaine FX in New York, wrote today in a note to clients. “It’s certainly not an actionable event any time soon.”

The greenback declined 0.6 percent to $1.3277 per euro at 5 p.m. New York time and reached $1.3296, the weakest level since June 20. It slid 1 percent to 99.29 yen and touched 98.89, the weakest intraday level since July 12. The euro depreciated 0.4 percent to 131.83 yen.

JPMorgan Chase & Co.’s G-7 Volatility Index, a measure of price swings among Group of Seven nations’ currencies, rose to 9.57 percent from the 9.11 percent reached yesterday, the lowest intraday level since May 9. The gauge climbed on June 24 to this year’s high of 11.96 percent. The 2013 average is 9.55 percent.

Kiwi Climbs

New Zealand’s dollar, nicknamed the kiwi, climbed versus all of its 16 major peers after the nation’s Reserve Bank said the pace of future interest-rate increases will depend on the growing housing market’s impact on prices, while reiterating it will keep borrowing costs at a record-low 2.5 percent this year.

The “Reserve Bank has told us that they’re going to tighten explicitly, no ifs or buts,” said Imre Speizer, a markets strategist at Westpac Banking Corp. (WBC) in Auckland. “The pressure from the markets would be to the upside for the kiwi.”

The kiwi surged 1.9 percent, the most on a closing basis since June 6, 2012, to 80.82 U.S. cents. It touched 81.06 cents, the strongest level since June 14.

The Australian dollar strengthened versus major peers as its South Pacific counterpart climbed. The Aussie appreciated 0.9 percent to 92.46 U.S. cents after dropping yesterday from a four-week intraday high of 93.19 cents.

Malaysia’s ringgit sank versus most major counterparts as forwards on the currency fell by the most in five weeks and bonds dropped. It lost 0.3 percent to 3.1985 per dollar.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $27 billion, compared with $23 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $9.4 billion, the largest share of trades at 34 percent. Options on the euro-dollar rate totaled $3.1 billion, or 11 percent.

Dollar-yen options trading was 30 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 27 percent less than average.

The Wall Street Journal article said Fed policy makers will probably discuss at their July 30-31 meeting how to describe to the public plans for stimulus and interest rates. The Fed buys $85 billion of bonds each month to put downward pressure on borrowing costs, a strategy that tends to debase the dollar. Policy makers have kept their key interest rate at virtually zero since 2008 to support the economy.

Dollar Gauge

The Bloomberg Dollar Index remained lower today after the Commerce Department said orders for U.S. durable goods climbed 4.2 percent last month, led by transportation equipment. A Bloomberg survey forecast a 1.4 percent gain.

The currency gauge, which tracks the greenback against 10 major peers, declined 0.7 percent to 1,024.10.

The yen climbed against all of its 16 most-traded counterparts except the kiwi amid increased demand for refuge.

“There was arguably some element of market caution supporting the yen, and possibly paring back some short positions,” Nick Bennenbroek, the head of currency strategy at Wells Fargo Securities LLC in New York, said in a telephone interview. “Broad U.S. dollar weakness against a range of currencies is another factor that has continued to support the yen.” Short positions are bets an asset, in this case the yen, will decrease in value.

Yen’s Slide

The currency has dropped 8.3 percent this year against the dollar as Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda have pushed to stem deflation and spur growth.

The yen depreciated 3.5 percent in the past month, the biggest decline among 10 developed-market peers tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 0.4 percent, while the dollar dropped 1.8 percent.

The euro fell earlier against the greenback amid speculation that improving data won’t derail European Central Bank President Mario Draghi’s pledge to keep interest rates low for an extended period. The ECB next meets Aug. 1.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 German executives, rose to 106.2 this month from 105.9 in June, data showed today. A Bloomberg survey predicted a gain to 106.1.

The index “points to a moderate upturn in German growth, which makes extra stimulus unnecessary,” Christian Schulz, an economist at Berenberg Bank in London, wrote in a note to clients. “At the same time, the moderate pace should not raise pressure for quick monetary tightening. It thus supports the ECB’s guidance that interest rates will stay at or below their current levels for an extended period.”

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.