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Dollar Weakens Against Commodity Currencies Amid Slow Growth

Dollar Falls Most in 2 Weeks
Sheets of one-hundred dollar bills wait to be cut into singles at the Bureau of Engraving and Printing in Washington. Photographer: Andrew Harrer/Bloomberg

The dollar weakened versus its counterparts in Australia, New Zealand and Canada, as rising commodity prices boosted demand for currencies linked to raw materials exports.

The U.S. currency reached a six-week low against the yen as U.S. economic reports indicated weaker-than-forecast growth, bolstering the Federal Reserve’s plan to keep U.S. interest rates low. The Canadian dollar reached parity with the greenback for the first time since Nov. 11. The Swiss franc strengthened to a record against the dollar as investors demand an alternative to the euro amid the region’s sovereign-debt crisis.

“With commodity prices rising, some people think the worst is behind for New Zealand,” said Kathy Lien, director of currency research with online currency trader GFT Forex in New York. “The reason why we’re seeing such strength in the commodity currencies is because commodities are doing quite well.”

The dollar fell 0.5 percent to $1.0100 per Australian dollar at 5:02 p.m. in New York, from $1.0046 yesterday. It declined 0.7 percent to 75.55 cents per New Zealand dollar and weakened 0.6 percent to C$1.0010. The Canadian dollar touched 99.76 Canadian cents, the strongest since April 26.

Euro, Yen

The dollar gained 0.4 percent to $1.3115 per euro after earlier touching $1.3275, the weakest level since Dec. 17. The U.S. currency declined as much as 1.2 percent to 81.82 yen, the lowest level since Nov. 12.

The Reuters/Jefferies CRB Index of raw materials rose 0.7 percent. Gold futures for February delivery gained $22.70, or 1.6 percent, to $1,405.60 on the Comex in New York.

The euro erased gains against the dollar after the European Central Bank said it failed to fully neutralize the extra liquidity created by its bond purchases for a second time since the program began in May.

The Frankfurt-based ECB said it drained 61.78 billion euros ($81 billion) from money markets via seven-day term deposits, almost 13 billion euros less than the 73.5 billion euros it intended to absorb.

ECB Sterilization

“If they’re not fully sterilizing, it’s true quantitative easing, which is bad news for the euro,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York.

The S&P/Case-Shiller index of property values fell 0.8 percent from October 2009, the biggest year-over-year decline since December 2009, the group said today in New York. The decrease exceeded the 0.2 percent drop projected by the median forecast of economists surveyed by Bloomberg News.

Consumer confidence fell in December to 52.5, lower than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the Confidence Board showed today.

While figures showed U.S. property values fell, reports during the next three days will reveal an improvement in employment, according to Bloomberg News surveys of analysts.

Figures Dec. 30 will show initial jobless claims declined and pending home sales advanced, the surveys forecast.

“The economic fundamental story in the U.S. is positive and moving in a positive direction,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York.

Tax Plan

President Barack Obama on Dec. 17 signed into law an $858 billion tax-cut bill.

The Fed reiterated this month its commitment to keep borrowing costs low for an “extended period,” holding the target rate for overnight lending between banks at zero to 0.25 percent, where it has been since December 2008. The Fed said last month it will buy $600 billion of Treasuries through June to boost the economy, a policy that has been dubbed QE2 for a second round of quantitative easing.

An increase in futures traders’ bets that the Swiss franc will strengthen against the dollar shows investors are concerned that Europe’s debt crisis may deepen, according to UBS AG.

The Swiss franc appreciated as much as 1.8 percent against the dollar to a record 94.35 centimes. It strengthened 1.2 percent to 1.2489 against the euro, almost its record high of 1.2439.

Franc Record

The franc reached a record against the single currency last week as investors sought safety from Europe’s sovereign-debt crisis. Swiss National Bank President Philipp Hildebrand, who ended 15 months of intervening in foreign-exchange markets this year, may prove powerless to stop the currency from extending a record rally that he calls a “burden.”

“The Swiss franc continues to advance and the Japanese yen is also stronger,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “We’re seeing some of the safe-haven currencies doing OK and the euro losing value.”

The euro has dropped 10.8 percent so far this year, the biggest loss among the 10 developed nations measured in the Bloomberg Correlation-Weighted Currency Indexes. The dollar has lost 1.6 percent and the yen has added 12.5 percent.

The euro has added 1 percent versus the dollar this month and the yen has climbed 1.6 percent.

South Africa’s rand was the second-best performer versus the dollar among the most-traded currencies as rising prices for precious metals lured investors.

The rand gained 0.9 percent to 6.6769 per dollar and touched 6.6443, the strongest level since December 2007. Gold, which along with platinum accounts for about a fifth of South Africa’s exports, advanced for a third day.

Japanese Finance Minister Yoshihiko Noda said in a news conference in Tokyo today he will take bold actions if necessary in the currency market, calling the yen’s recent moves one-sided. Noda also said he will keep closely watching markets.

Download: Chandler of Brown Brothers Discusses Currencies


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