The euro fell for a second day against the dollar as traders assessed whether European Central Bank policy makers will add monetary stimulus amid uneven economic signals.
Australia’s dollar climbed after Reserve Bank Governor Glenn Stevens said there are early signs the nation is in a transition from mining-led demand growth to domestic consumption and the economy may expand this year. The euro approached a three-week low versus the greenback as ECB Governing Council member Luis Maria Linde said while deflation risks aren’t high, the bank will ease policy if needed. Sweden’s krona slid versus major peers as the nation’s manufacturing confidence fell.
“People are becoming a bit more optimistic on the fact that the ECB may be willing to ease policy in the months ahead,” Mark McCormick, a macro strategist at Credit Agricole SA in New York, said in a telephone interview. “A lot of that is driven by commentary from a host of policy makers over the last two days.”
The euro depreciated 0.3 percent to $1.3781 at 5 p.m. New York time and reached $1.3777. It touched $1.3749 on March 20, the lowest since March 6. Europe’s shared currency sank 0.5 percent to 140.63 yen. Japan’s currency advanced 0.2 percent to 102.04 per dollar.
Australia’s dollar reached 92.45 U.S. cents, the strongest since Nov. 22, before trading at 92.26 cents, up 0.7 percent.
Sweden’s currency weakened the most among the dollar’s 31 major peers. Manufacturing confidence fell to 99.8 in March, compared with an estimate of 104.0, from a revised figure of 103 the previous month.
“Confidence moderated in March amongst much of Swedish industry, adding to concerns the sluggish Swedish recovery is losing momentum,” Josh O’Byrne, a strategist at Citigroup Inc., wrote in a research report. “With potential for further inflation undershoots and downward revisions in the rate path next month, Swedish krona risks continue to be on the downside.”
The krona lost 1 percent to 6.4674 per dollar and touched 6.4678, its weakest level since March 4. It depreciated 0.7 percent to 8.9122 per euro.
An equally weighted basket of the so-called BRICS emerging-market currencies, those of Brazil, Russia, India, China and South Africa, rallied for a fourth day against the dollar and reached the highest level since Dec. 27.
Europe’s shared currency weakened yesterday after data showed a gauge of business sentiment in Germany, the euro area’s biggest economy, fell in March. A purchasing managers’ index of German manufacturing for this month dropped more than forecast, data showed on March 24.
ECB policy makers, who lowered their benchmark interest rate to 0.25 percent in November, meet April 3.
Central-bank Governing Council member Jozef Makuch said yesterday he sees potential for the euro to weaken by year-end.
“The ECB has many measures; one of them is supplying liquidity into circulation,” Makuch said in Bratislava, Slovakia, citing “deflation risks.” The measures would depend on the circumstances, he said.
ECB President Mario Draghi said in a speech in Paris yesterday the ECB’s accommodative monetary policy should be increasingly felt throughout the euro-region economy. Still, he said, if “any downside risks to this scenario appear, we stand ready to take additional policy measures.”
In the U.S., bookings for non-military capital goods excluding aircraft fell 1.3 percent last month after a 0.8 percent gain in January that was smaller than initially reported, Commerce Department data showed in Washington. Demand for all durable goods climbed a more-than-forecast 2.2 percent, reflecting the biggest gain in automobile demand in a year.
“The dollar bulls are still waiting for validation from economic data,” Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA, said by telephone.
The Federal Reserve last week cut its bond buying to $55 billion, from $85 billion last year, citing “underlying strength” in the economy. Chair Janet Yellen said the stimulus program may conclude by year-end and the key interest rate may rise from a record low about six months later.
“As the Fed normalizes policy and the ECB lags behind, the euro’s gains will be capped,” said Noriaki Murao, the New York-based managing director of the marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “The euro’s current level is at the upper end of its range.”
Stevens reiterated today that Australian borrowing costs, currently at a record-low 2.5 percent, were likely to remain steady for a period. The central bank governor has said the Aussie is too strong given economic fundamentals.
The Aussie has risen 3.4 percent this month against its U.S. peer, the best performer among the greenback’s 16 most-traded counterparts. The euro and the yen have each declined 0.2 percent.
“Stevens’s overnight comments have caused the market to rethink where to draw the line in the sand for the Aussie,” Shahab Jalinoos, a senior currency strategist at UBS AG in Stamford, Connecticut, said in a phone interview. “Even if you think the Australian economy is not fantastic, the comments challenge how unhappy the RBA would be about a strong Aussie. They wouldn’t talk it down as aggressively as before.”
The dollar-yen’s six-month implied volatility was at 9.0525 percent after falling to 8.995 percent on March 24, the lowest close since January 2013.
Etsuro Honda, an adviser to Japanese Prime Minister Shinzo Abe, said in an interview yesterday the Bank of Japan could decide as soon as mid-May whether further stimulus is needed to keep inflation on track toward its 2 percent target after the sales tax is raised from to 8 percent from 5 percent next month. Policy makers next meet on April 7-8.
“Dollar-yen has been stuck in a narrow range around 102, but I expect it to restart its strengthening trend,” said Bank of Tokyo Mitsubishi’s Murao. BOJ Governor Haruhiko Kuroda “is turning up his rhetoric on additional easing. It’s possible the BOJ will ease in April with the increase in the sales tax.”