Dollar Erases Losses as Durable-Goods Orders Rise; Rand Weakens

The dollar erased losses against the euro, trimming a weekly decline, as a higher-than-forecast increase in orders for U.S. durable goods added to speculation the Federal Reserve may slow monetary stimulus this year.

The 17-nation currency rose earlier after industry data showed German business confidence unexpectedly increased in May, adding to optimism the region’s biggest economy is improving. The yen extended its biggest weekly gain versus the dollar in almost a year after Bank of Japan Governor Haruhiko Kuroda said the central bank had announced sufficient monetary easing. South Africa’s rand slid on concern labor unrest will curb growth.

“If anything, it gave maybe a little bit of momentum back, but it’s not a game changer,” Fabian Eliasson, vice president of corporate foreign-exchange sales at Mizuho Financial Group Inc. in New York, said of the durable-goods data’s effect on the dollar. “Yen, in the case now, is due for a correction.”

The greenback was little changed at $1.2932 per euro at 5 p.m. in New York after falling 0.5 percent earlier and appreciating as much as 0.2 percent. It declined 0.7 percent this week.

The yen climbed 0.7 percent to 101.31 per dollar. It gained 1.9 percent this week, the most since June 1. Against the euro, the Japanese currency rallied 0.7 percent to 131.01.

Yen Bets

Futures traders increased to the highest level since July 2007 their bets that the yen will drop against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 95,186 on May 21, compared 88,407 a week earlier.

South Africa’s currency fell, extending a third weekly decline, amid concern that labor talks scheduled for June will spark more unrest in the mining industry, which accounts for more than 50 percent of exports in Africa’s largest economy. The rand weakened 0.5 percent to 9.5762 per dollar. It dropped 1.8 percent this week.

Trading in over-the-counter foreign-exchange options totaled $29 billion, compared with $40 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg.

Volume in options on the dollar-yen exchange rate was $10 billion, the largest share of trades at 33 percent. Euro-dollar options were the second most-actively traded, at $5.5 billion, or 19 percent.

Below Average

Dollar-yen options trading was 27 percent below the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Options trading in the euro versus the U.S. currency was 29 percent higher than the average.

The JPMorgan G7 Volatility Index, based on three-month futures options on Group of Seven nations’ currencies, slipped from the highest level in almost two months. It declined to 10 percent after touching 10.1 percent yesterday, the highest since Feb. 27. The average over the past year is 8.8 percent.

Bookings for equipment meant to last at least three years rose 3.3 percent last month, U.S. Commerce Department data showed, compared with the median forecast of 1.5 percent in a Bloomberg survey. The orders dropped by a revised 5.9 percent in March. Excluding the more volatile transportation equipment component, durable-goods orders climbed 1.3 percent, the first gain in three months.

‘Pretty Resilient’

“Better data in the U.S. shows that capital expenditures are still pretty resilient,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “The stronger U.S data potentially is portending an earlier-than-expected tapering” of Fed bond-buying under the quantitative-easing stimulus strategy.

The Fed is buying $85 billion of Treasury and mortgage bonds each month to cap borrowing costs. Chairman Ben S. Bernanke said this week it may slow purchases at its next few meetings if it’s confident of sustained gains in the economy.

The euro reached $1.2993, approaching its one-week high on May 22 of $1.2998, as the Ifo institute’s German business climate index improved to 105.7 from 104.4 in April. A Bloomberg survey predicted it would remain unchanged. GfK AG said its consumer-sentiment index will increase to 6.5 next month from 6.2 in May. That would be the highest since September 2007.

While risks stemming from Europe’s debt crisis persist, the German economy will gather pace in the current quarter, the Bundesbank said this week. Factory orders surged for a second month in March and exports increased.

Yen Gains

The yen rose for a second day versus the dollar as Kuroda said the BOJ will implement flexible money-market operations and that he wants to avoid increasing volatility in bond markets.

The currency’s rally is “a bit of an equity play and positioning before the long weekend,” said Peter Gorra, chief dealer in New York at BNP Paribas SA. Markets are “thinner than normal due to early bond-market closing and long weekend.”

Financial markets in the U.S. and U.K. will be shut for public holidays on May 27.

Japan’s Nikkei 225 stock average gained 0.9 percent today after sliding as much as 3.5 percent. It tumbled 7.3 percent yesterday, the most since the aftermath of the nation’s March 2011 earthquake and tsunami.

The yen has slumped 12 percent this year, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the Bank of Japan doubled monthly bond purchases in April to end deflation. The euro has gained 2.8 percent and the dollar has advanced 5.1 percent.

The Australian dollar added to a third weekly loss as HSBC Holdings Plc said the currency will weaken to 90 U.S. cents by year-end, compared with a previous forecast for 95.

Goldman Sachs Group Inc. said yesterday it remained bearish on the Aussie, expecting it to weaken to 90 cents in 12 months.

The Aussie dollar dropped 1 percent today and 0.8 percent this week to 96.52 U.S. cents. It touched 95.94 cents yesterday, the lowest level since June 1.

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