Commodity Currencies Drop Amid Bets on Economic Slowing

The dollar rose against the currencies of commodity-exporting countries from Canada to Australia as investors sought safety amid signs of curtailed economic growth in the world’s biggest economies.

New Zealand’s dollar slid the most in two months and Australia’s currency weakened as risk appetite faded and commodities fell amid bets China’s central bank is leaning toward tightening policy, damping prospects for economic expansion. Canada’s dollar slid as the central bank cut growth forecasts. Economists lowered estimates for the U.S. economy after a 16-day partial shutdown of the government.

“It may very well be that the outlook for U.S. growth has taken a larger-than-expected hit, and so the demand for commodities may not be what we expected earlier this year,” Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York, said in a phone interview.

New Zealand’s dollar, nicknamed the kiwi, slumped as much as 1.8 percent, the biggest intraday decline since Aug. 5, to 83.57 U.S. cents before trading at 83.93 cents, down 1.4 percent, at 5 p.m. New York time. Australia’s dollar declined as much as 1 percent, the most on an intraday basis since Sept. 12, to 96.07 U.S. cents before trading at 96.23 cents.

The greenback was little changed at $1.3776 per euro after depreciating earlier to $1.3793, the weakest level since November 2011, and gaining to $1.3742.

‘Best Rock’

The yen gained 0.8 percent to 134.15 per euro, after climbing as much as 1.2 percent, the biggest intraday advance since Aug. 27. It depreciated to 135.51 yesterday, the weakest level since November 2009. Japan’s currency strengthened 0.8 percent to 97.38 per dollar and touched 97.16, briefly breaching its 200-day moving average at 97.28.

“The best rock to hide under appears to be the yen,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said in a phone interview. “You’ve had global risk-off catalysts.”

JPMorgan Chase & Co.’s G-7 FX Volatility Index increased to 7.63 percent after sliding yesterday to 7.53 percent, the lowest level since Jan. 8. The gauge reached 10.2 percent on Sept. 3 and has averaged 9.42 percent this year.

China’s benchmark money-market rate, the seven-day repurchase rate, surged 47 basis points, or 0.47 percentage point, to 4.05 percent, the biggest increase since July 29, according to a weighted average compiled by the National Interbank Funding Center. China’s economy is the world’s biggest after that of the U.S.

‘Very Sensitive’

The People’s Bank of China, which last week refrained from adding funds to markets, may lean toward policy tightening should inflation accelerate, Song Guoqing, a central-bank academic adviser, said Oct. 20.

“The yen moves show that people are very sensitive to any notion of tightening,” said Geoffrey Yu, a senior foreign-exchange strategist at UBS AG in London. “There’s risk aversion in Asia, which is supporting the yen.”

Standard & Poor’s GSCI Index of raw materials slid 1.4 percent, the most in six weeks. West Texas Intermediate crude oil declined to $96.16 a barrel in New York, the lowest level in almost four months, as U.S. supplies rose more than forecast.

The Bloomberg U.S. Dollar Index fell 1 percent last week on bets that the U.S. government shutdown this month will spur the Federal Reserve to maintain monetary stimulus, which is seen as debasing the currency. The closings shaved at least 0.6 percent from fourth-quarter 2013 gross-domestic-product growth, S&P said last week in a report.

“For right now, neither commodity currencies nor commodities themselves seem to have reacted” to prospects for unabated U.S. easing, Bank of New York Mellon’s Woolfolk said.

Canadian Dollar

Canada’s currency, known as the loonie for the image of the aquatic bird on the C$1 coin, lost 0.9 percent to C$1.0382 per U.S. dollar.

Canadian policy makers maintained the benchmark interest rate on overnight loans between commercial banks at 1 percent today. While the decision was forecast by all 23 economists in a Bloomberg News survey, the bank unexpectedly dropped language about the need for future interest-rate increases that had been in place for more than a year, citing a slack economy.

The central bank cut its forecast for the nation’s economic growth this year to 1.6 percent, from 1.8 percent. The outlook for 2014 was lowered to 2.3 percent, from 2.7 percent. Policy makers said that “uncertain global and domestic economic conditions are delaying the pick-up in exports and business investment,” leaving the economy weaker than had been expected.

Technical Gauges

Europe’s shared currency may have gained too much, too fast against the greenback, according to a technical indicator. The euro’s 14-day relative strength index against the greenback reached 74 yesterday, above the 70 level some traders see as a signal that a drop may be imminent. It was at 73 today.

Technical gauges also signaled the euro may have reached a turning point versus the yen. The daily stochastics chart shows the 17-nation currency’s advance to 135.51 yesterday, the strongest since November 2009, sent it toward the most overbought level in three months. Stochastics measure the velocity of a security’s price movement to identify overbought and oversold conditions.

The yen has advanced 0.9 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro rose 1.5 percent, while the dollar weakened 0.8 percent.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $54 billion, about the same as yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and monitored by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $13 billion, the largest share of trades at 24 percent. Options on the euro-dollar rate totaled $8.1 billion, or 15 percent.

Dollar-yen options trading was 137 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 60 percent above average.

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