Dollar Falls to 1-Month Low on Fed Speculation; Aussie Advances

The dollar fell to a one-month low as the exit of former Treasury Secretary Lawrence Summers from the race to lead the Federal Reserve damped bets for an early end to expansionary monetary policy.

The U.S. currency weakened as Summers’s decision fueled speculation the Fed will be more cautious to remove monetary stimulus, which tends to weaken a nation’s foreign exchange. The Federal Open Market Committee will consider whether to slow its $85 billion of month bond-buying at a policy meeting tomorrow and the next day. Australia’s dollar rose to a three-month high and the South African rand climbed to the strongest in five weeks. The Turkish lira jumped the most since May 2010 as the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons, boosting demand for higher-yielding assets.

“I would attribute a lot of dollar selling towards Summers’s withdrawal,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc., said in a phone interview. “As for the FOMC meeting, any tapering of over $10 billion will be considered fairly aggressive.”

The Bloomberg U.S. Dollar Index, which tracks the performance of a basket of 10 leading global currencies against the dollar, fell 0.3 percent to 1,020.97 as of 5 p.m. in New York. It touched the lowest level since Aug. 12.

Market Prices

The dollar fell 0.3 percent to $1.3334 per euro after dropping to $1.3386, the weakest level since Aug. 28. The U.S. currency declined 0.3 percent to 99.08 yen after depreciating to 98.46 yen, the least since Sept. 2. The euro was little changed at 132.11 yen.

The Australian, New Zealand and Canadian dollars all rallied as investors sought higher-yielding assets.

The Aussie climbed 0.8 percent to 93.18 U.S. cents after rising to the strongest level since June 19. The kiwi rallied 0.5 percent to 81.70 cents, and Canada’s currency gained 0.3 percent to C$1.0324 per U.S. dollar.

The Australian currency may extend its advance to as high as 95.10 U.S. cents, the Fibonacci 38.2 percent retracement of the currency’s gain in June, as the risk of additional weakness for the greenback has increased, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a note to clients. “The backdrop for commodity currencies continues to improve against the dollar,” he wrote.

The rand rose 1.2 percent to 9.8102 per dollar after appreciating to the strongest level since Aug. 9.

Rand Bid

“There is very strong global risk appetite after the announcement that Summers is no longer running,” said Mohammed Nalla, head of strategic research at Nedbank Group Ltd. (NED) in Johannesburg. The rand may advance to 9.65 per dollar after breaching key technical levels, he said.

Obama had mentioned Summers and Fed Vice Chairman Janet Yellen as candidates to lead the Fed after Ben S. Bernanke’s term as chairman expires Jan. 31, with policy makers preparing to reduce bond purchases, known as quantitative easing. Summers until yesterday was the president’s favorite.

Twenty U.S. senators, including 19 Democrats and one independent, signed a letter of support for Yellen in July.

“It’s the Summers thing mainly and then perhaps to some extent behind that as well there’s the agreement on Syria,” said Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London. “The dollar will probably stay a bit softer against the riskier currencies. The emerging-market currencies, or the riskier G-10 currencies of the Aussie, kiwi and Canadian dollar, are reasonably well set against the dollar.”

Fed Policy

The Federal Open Market Committee will slow its monthly asset purchases to $75 billion from $85 billion at a two-day meeting starting tomorrow, according to a Bloomberg News survey of economists on Sept. 6.

The JPMorgan G7 Volatility Index fell to 9.06, the lowest in five weeks. It’s below the average 9.57 percent this year.

“The anxiety about the FOMC and how much tapering we’re going to see; the nervousness about China’s slowdown, and really the shift to liquidity from EM bonds to safer markets -- those were the three key anxieties of the summer and I think those three risks have receded,” said Mike Moran, a senior currency strategist at Standard Chartered Plc in New York.

Turkey’s lira extended gains from last week as U.S. Secretary of State John Kerry tries to build support for a plan to find and destroy Syria’s chemical weapons. He will meet with French President Francois Hollande and the foreign ministers from France and the U.K. after negotiating an accord with Russian Foreign Minister Sergei Lavrov.

The lira rose 1.2 percent to 2.0045 per dollar.

Currency Ranking

The dollar has depreciated 0.6 percent in the past week, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen rose 0.9 percent the euro was little changed.

Trading in over-the-counter foreign-exchange options totaled $15 billion, compared with $16 billion on Sept. 13, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the euro-dollar exchange rate amounted to $1.83 billion, the largest share of trades at 13 percent. Options on the dollar-yen rate totaled $1.82 billion.

Euro-dollar options trading was 21 percent more than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Greenback-yen options trading was 46 percent less than average.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

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

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