Dollar Declines as U.S. Retail Report Reduces Demand for Haven

The dollar weakened against the majority of its most-traded counterparts as U.S. retail sales fell less than forecast, damping demand for haven assets.

The U.S currency rose against the yen and Swiss franc after the retail sales report, which followed data this month showing slowing manufacturing and rising unemployment. Currencies of commodity-exporting countries, such as the Canadian and Australian dollars, rose the most against major peers as raw material prices gained. The euro pared its gain against the dollar on reports an agreement on a second bailout for Greece may be delayed.

“The data itself underpins the logic that the U.S. recovery is modest and gradual,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “A risk-on environment supports selling dollars and selling yen and purchasing the higher-yielding growth currencies.”

The dollar fell 0.2 percent to $1.4440 per euro at 5:02 p.m. in New York, from $1.4413 yesterday. It fell as much as 0.6 percent. The greenback appreciated 0.3 percent to 80.49 yen, from 80.24.

The Thomson Reuters/Jefferies CRB Index of commodities rose 0.7 percent and the Standard & Poor’s 500 Index gained 1.3 percent.

Swiss Falls

The Swiss franc dropped versus all of its 16 most-traded counterparts tracked by Bloomberg as the government lowered its forecast for 2012 economic growth and said further currency appreciation poses risks to its outlook.

Luxembourg Finance Minister Luc Frieden said an agreement on a second bailout package for Greece may be delayed until July. European leaders planned to reach a consensus for easing Europe’s biggest debt burden before a summit of European Union leaders on June 23-24.

“You did see the euro sell off slightly on that,” said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc. “In terms of the euro debt crisis, the bears are already there.”

European Central Bank Governing Council member Mario Draghi said he shares the ECB’s opposition to a restructuring of Greek debt.

Draghi Stance

“The ECB is not in favor of restructuring and haircuts” and it “excludes all concepts that are not purely voluntary,” Draghi told lawmakers in Brussels at his confirmation hearing for the ECB presidency today. He added that the “cost of a default would exceed the benefits” and a “default would not address the root causes of the crisis.”

China’s retail sales rose 16.9 percent last month, while industrial production increased more than economists forecast, the statistics bureau reported. The 5.5 percent increase in China’s consumer-price index was the fastest in almost three years. Lenders were ordered to set aside more cash as reserves.

“If you look at the trade numbers that came out of China they are still importing quite a bit,” said Kathy Lien, director of currency research with online currency trader GFT Forex in New York. “That means their demand remains strong and Aussie and kiwi are natural beneficiaries.”

China’s yuan strengthened, snapping a three-day decline, after the central bank ordered lenders to set aside more cash as reserves. The half percentage point increase of the required reserve ratio announced by the central bank today will be effective on June 20.

Yuan Path

The People’s Bank of China set the yuan’s reference rate 0.11 percent stronger at 6.4822 per dollar, the biggest rise since May 25. The yuan isn’t allowed to move more than 0.5 percent on either side of the daily fixing.

Australia’s dollar rose 0.8 percent to $1.0685 and New Zealand’s dollar, known as the kiwi, added 0.3 percent to 81.81 U.S. cents. The South Pacific nations export raw materials to China.

Canada’s dollar, which trades most with the U.S., rose the most against the dollar among the major currencies.

The loonie advanced 0.8 percent to 96.82 Canadian cents per U.S. dollar, the strongest since June 1. Norway’s krone also rose, gaining 0.5 percent to 5.4066 per dollar.

Oil, which both Canada and Norway export, rose as much as 2.3 percent to $99.54 per barrel.

Carry Trade

The carry trade of using the dollar to buy the krone, Australian dollar, loonie and New Zealand’s dollar has more than quadrupled this week and produced a 33 percent return for the month. In such trades, investors borrow where interest rates are low to purchase the currencies of countries with higher rates. The Fed’s zero to 0.25 percent overnight lending rate makes the dollar attractive for such transactions.

Retail purchases in the U.S fell 0.2 percent in May, following a 0.3 percent increase in April, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 0.5 percent decrease. Wholesale costs in the U.S. rose more than forecast in May, led by higher prices for fuel, plastics and the fastest rise in 30 years for apparel and textile costs.

The Bank of Japan kept the benchmark overnight rate in a range of zero to 0.1 percent and left unchanged its 30 trillion yen ($370 billion) lending facility and 10 trillion yen asset-buying program.

The yen has declined 4.8 percent this year versus the currencies of nine other developed nations as measured by Bloomberg Correlation-Weighted Indexes. The dollar is down 5.7 percent, while the euro is up 2.6 percent, according to the index.

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