Dollar Near One-Month Low Versus Euro; Aussie, Yen Drop on China

The dollar traded 0.3 percent from a one-month low versus the euro as weaker U.S. economic indicators bolstered the argument for the Federal Reserve to delay a reduction to its bond-buying program.

The euro was supported before data predicted to show services and factory output in the region contracted at the slowest pace in more than a year. Currencies of Asia-Pacific nations including the Australian dollar and yen dropped versus the greenback after a private report showed China’s manufacturing shrank at a faster pace. The Indonesian rupiah slumped to a four-year low.

“Since last week, U.S. housing data has consistently disappointed,” said Takeshi Yoshimatsu, an assistant manager in Tokyo at Ueda Harlow Ltd., which provides margin-trading services. “If that trend continues today, expectations of a near-term start to Fed tapering will be pushed back, increasing pressure for dollar selling.”

The dollar was 0.1 percent higher at $1.3204 per euro as of 7:01 a.m. in London and yesterday touched $1.3239, the weakest level since June 21. It rose 0.4 percent to 99.81 yen, following a 1.2 percent, two-day drop. The Japanese currency slipped 0.2 percent to 131.79 per euro.

Sales of new U.S. homes probably rose 1.7 percent to an annualized pace of 484,000 last month, compared with 2.1 percent growth in May, according to the median estimate in a Bloomberg News survey before today’s Commerce Department report.

Slowing Data

A July 22 report showed sales of previously owned homes slid unexpectedly in June as tight supply and higher mortgage rates imperiled the U.S. market’s recovery. Other data this month revealed that housing starts fell in June to the lowest in almost a year, and retail sales rose less than forecast.

“The market was looking at a September start to tapering as a done deal, but now the idea that might not happen is starting to emerge,” said Yoshitsugu Fujita, an assistant vice president of global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “I think dollar weakness could last until the U.S. growth data next week,” he said, referring to a second-quarter gross domestic product report due July 31.

The Fed buys $85 billion of debt each month as part of its quantitative-easing stimulus to cap borrowing costs, a strategy that typically debases currencies. A Bloomberg survey showed more economists are predicting the U.S. central bank will trim its monthly bond buying by $20 billion in September.

Purchases Flexible

Fed Chairman Ben S. Bernanke said last week in two days of congressional testimony that the purchases “are by no means on a preset course” and may be reduced more quickly or expanded as economic conditions warrant. He said reducing bond-buying wouldn’t constitute policy-tightening.

The U.S. currency has risen 4.4 percent this year among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has advanced 4.6 percent, while the yen has been the worst performer, dropping more than 10 percent.

JPMorgan Chase & Co.’s G7 Volatility Index, a measure of currency fluctuations, has declined to 9.11 percent, the lowest intraday level since May 9. The gauge has dropped for nine consecutive days, the longest stretch of declines since July 2012. It touched 11.96 percent, the highest this year, on June 24.

A euro-area composite index based on a survey of purchasing managers in the services and manufacturing industries improved to 49.1 in July from 48.7 the previous month, London-based Markit Economics may say today, according to economists. That would match the level in March 2012. A reading below 50 indicates contraction.

China PMI

The preliminary reading of 47.7 for a China Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compared with the 48.2 median estimate a Bloomberg survey. June’s final reading was 48.2.

“I expect to see countries where the economies are more tied to China than they are to the U.S. to see currencies weaken,” said Dominic Bryant, senior Asia economist for BNP Paribas SA in Hong Kong. “In China, people are just getting continually surprised to the downside. Their model is broken.”

The total value of Japan’s imports and exports with China was 2.4 trillion yen ($24.1 billion) in June, the Ministry of Finance said today. Total trade with the U.S. stood at 1.7 trillion yen.

The rupiah declined 0.6 percent to 10,255 per dollar, according to prices from local banks. It touched 10,276 earlier, the weakest level since July 2009.

The Aussie dollar slid 0.5 percent to 92.54 U.S. cents and New Zealand’s kiwi dropped 0.4 percent to 79.68 cents.

“On the day, we seem to be at the low end of the range, with China-related concerns continuing to weigh on the Aussie” said Callum Henderson, the global head of currency research at Standard Chartered Plc in Singapore. “On a six- to nine-month view, we continue to expect the Australian dollar to be lower.”

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