Dollar Falls as Treasury Yields Decline; Aussie Rallies

Yen Slides on Tokyo Olympics Success
A girl looks at the city skyline from an observation deck in Tokyo. Japan’s capital beat Madrid and Istanbul to win the 2020 Olympics host role, the International Olympic Committee said yesterday in Buenos Aires. Photographer: Tomohiro Ohsumi/Bloomberg

The dollar fell as Treasury two-year yields declined for a second day on speculation lower-than-forecast job growth may prompt the Federal Reserve to be less aggressive when reducing monetary stimulus.

The yen weakened against its 16 most-traded peers as a report showed the nation’s economy expanded faster than initially estimated and as Tokyo’s winning bid to host the 2020 Olympics boosted optimism in the government’s policies. Australia’s dollar touched a six-week high and the South Korean won climbed to the highest level since May after a report showed China’s exports increased. The Canadian dollar extended gains after building permits rose to a record in July.

“The dollar has been driven higher by front-end rates,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “The majority is still looking for tapering, but that view has probably become more questionable or less clear cut,” he said of the market’s view of Fed policy.

The Bloomberg U.S. Dollar Index, which measures the greenback against 10 major peers, fell for a second day and touched its lowest level since Aug. 28 before trading at 1,027.65 at 5 p.m. New York time.

The yen depreciated 0.5 percent to 99.58 per U.S. dollar. It reached 100.23 on Sept. 6, the weakest level since July 25. Japan’s currency dropped 1 percent to 131.99 per euro. The dollar fell 0.6 percent to $1.3255 per euro, after advancing 0.3 percent last week.

Aussie Strength

Australia’s dollar, which is down 11.2 percent this year, strengthened after data showed exports rose more than expected in China, its biggest trading partner. Overseas shipments rose 7.2 percent in August from a year earlier, the General Administration of Customs said in Beijing yesterday. That compares with the 5.5 percent median estimate of economists surveyed by Bloomberg and July’s 5.1 percent gain.

China’s consumer prices rose 2.6 percent last month from a year earlier, the Beijing-based National Bureau of Statistics said today, matching the median economist estimate in a Bloomberg poll. Premier Li Keqiang is seeking to keep price gains within 3.5 percent this year.

The Aussie dollar rose 0.5 percent to 92.28 U.S. cents after touching the strongest since July 29.

South Korea’s currency gained 0.5 percent to 1,086.80 against the greenback after touching 1.086.69, the strongest level since May 8. Brazil’s real advanced 1.3 percent to 2.2761 per dollar after gaining 3.4 percent last week, the most since January 2012.

Canada Dollar

The loonie, as the Canadian dollar is known for the image of aquatic bird on the C$1 coin, rose 0.4 percent to C$1.0369 per U.S. dollar.

Trading in over-the-counter foreign-exchange options totaled $20 billion, compared with $19 billion on Sept. 6, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the Australian-dollar versus U.S.-currency exchange rate amounted to $4 billion, the largest share of trades at 20 percent. Options on the U.S. dollar-yen rate totaled $3.3 billion, or 16 percent.

Aussie-U.S. dollar options trading was 101 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 about 9 percent less than average.

Japan Economy

Japan’s gross domestic product rose an annualized 3.8 percent in the second quarter from the previous three months, compared with a preliminary estimate of 2.6 percent, the Cabinet Office said in Tokyo today. Japan’s capital, which staged the 1964 Summer Games, beat Madrid and Istanbul to win the 2020 host role, the International Olympic Committee said Sept. 7 in Buenos Aires.

Combined with gross domestic product data, the report added to signs Japanese Prime Minister Shinzo Abe’s package of fiscal and monetary policies are giving the nation momentum.

“There’s been a lot of talk about the Olympics, the Chinese trade numbers and the better growth data for Japan,” said Jane Foley, senior currency strategist at Rabobank International in London. “However, before we can expect the yen to hold a move above 100, we are going to need to see a bit more dollar strength.”

The yen will trade at 105 per dollar in 12 months, Foley said.

Fed View

The Fed will taper its monthly bond purchases to $75 billion from the current $85 billion pace at its Sept. 17-18 meeting, according to the median estimate of 34 economists surveyed by Bloomberg News on Sept. 6.

The U.S. central bank will keep purchases of mortgage-backed securities at the current $40 billion per month pace, while cutting Treasury bond buying to $35 billion per month, from $45 billion, economists said. Last month, analysts estimated the Fed would reduce purchases to $35 billion in MBS and $40 billion in Treasuries.

Yields on Treasury two-year notes declined to 0.44 percent after touching 0.53 percent on Sept. 6, the highest level since 2011.

U.S. payrolls rose by 169,000 last month, less than the 180,000 estimate in a Bloomberg survey, Labor Department figures showed on Sept. 6. That followed a revised 104,000 increase in July that was smaller than initially estimated.

The dollar weakened even as President Barack Obama intensified his campaign to persuade a reluctant American public to back military action against Syria and Bashar al-Assad threatened retaliation “direct and indirect” if the U.S. attacks.

“You could make the argument the dollar should do well on risk aversion,” BNP’s Serebriakov said. “But I think here it’s more about markets already having a positive bias on the currency and the potential for higher oil prices probably hurts the dollar more than its helps.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE