Dollar Drops Versus Higher-Yielding Peers; Ruble Slides

The dollar declined versus higher-yielding counterparts as traders pushed out expectations for the Federal Reserve to increase interest rates amid signs of slowing global growth.

The currencies of Australia and New Zealand gained against the greenback after Dallas Fed President Richard Fisher said he continued to be “hawkish” on rates but wanted “to be sensible.” U.S. Treasury yields were at almost a 17-month low. The yen weakened as a media report fueled bets Japan’s pension fund is moving closer to increasing holdings of stocks and overseas assets. Brazil’s real was the worst performing major currency as prospects for a new government dimmed.

“Yields are relatively low, so that would be a restraining factor for the U.S. dollar and be supportive for some of these more higher-yielding currencies,” Eric Viloria, a strategist at Wells Fargo & Co. in New York, said in a phone interview. “Some of those concerns last week were with regards to the outlook for global growth.”

The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 major counterparts, fell 0.2 percent to 1,061.51 at 5 p.m. New York time.

The dollar slipped 0.3 percent to $1.2800 per euro after dropping 1 percent last week, the most since the five days through April 11. Japan’s currency was little changed at 106.95 per dollar, after sliding 0.9 percent during the previous two days. The yen depreciated 0.4 percent to 136.89 per euro.

Aussie, Kiwi

Yields on benchmark U.S. 10-year Treasuries were little changed at 2.19 percent after touching 1.86 percent last week, the lowest since May 2013. David Woo, Bank of America Merrill Lynch’s head of global rates and currencies, said today the bank’s worst call this year was a bearish forecast for Treasuries that failed to account for a global slowdown.

The Aussie added 0.5 percent to 87.84 U.S. cents and New Zealand’s kiwi rose 0.6 percent to 79.67 U.S. cents. At 2.5 percent and 3.5 percent, the Antipodean nations have the highest interest rates among Group of 10 nations. The U.S. federal funds rate has been held at zero to 0.25 percent since 2008.

The real fell 1.2 percent, the most among the greenback’s 31 major peers, as a voter poll before the Oct. 26 election runoff showed opposition candidate Aecio Neves statistically tied with President Dilma Rousseff.

The ruble slid after Moody’s downgraded Russia one level to Baa2 from Baa1 on Oct. 17. The ruble depreciated 0.9 percent to 46.2361 against the central bank’s target basket of dollars and euros, the weakest closing level on record.

Pension Reform

The yen weakened for a fourth day against the euro after the Nikkei newspaper said in an Oct. 18 report the Government Pension Investment Fund will raise its holdings of foreign bonds and shares to about 30 percent from 23 percent, without saying where it got the information.

Bank of Japan Governor Haruhiko Kuroda reiterated today that policy makers would maintain monetary easing until the inflation rate stabilizes at 2 percent. The central bank buys about 7 trillion yen ($65.3 billion) in bonds each month.

Japan’s currency erased losses against the dollar after the departure of two government ministers prompted speculation this would delay the reforms.

Equities Rout

Global equities have lost about $4.3 trillion of value in the past four weeks on concern economic growth is slowing. A month-long rout of European stocks continued today while the S&P 500 Index rose 0.9 percent after its fourth week of losses.

JPMorgan Chase & Co.’s Global FX Volatility Index touched the highest since February on Oct. 16 amid heavy trading. On Oct. 15, volume in the two-hour period from 1 p.m. in London accounted for more than 10 percent of euro-dollar and dollar-yen traded last week, Deutsche Bank AG analysts wrote in a report today.

“You’re getting into this point where accounts and market environments are getting confused,” Richard Cochinos, head of Americas Group of 10 currency strategy at Citigroup Inc. in New York, said by phone. “The desire to lighten a position is stronger than the desire to add to risk.”

Futures traders estimated a Fed interest-rate increase at 46 percent odds by October 2015, down from 51 percent last week. They saw a 52 percent chance for the Fed to tighten in July as recently as Oct. 3.

Fed Views

“We’ll just have to see how things proceed in the U.S. economy,” Fisher of the Dallas Fed told CNBC today in an interview. He said he continues to support ending the central bank’s bond-buying program this month.

Boston Fed President Eric Rosengren said Oct. 17 the Fed shouldn’t overreact to turmoil in financial markets as it approaches its Oct. 28-29 policy making, while St. Louis Fed President James Bullard said last week the Fed should consider delaying plans to end bond-buying to halt a decline in expected inflation. The U.S. Bureau of Labor Statistics releases consumer price indexes on Oct. 22.

“Ahead of the next Fed meeting, the various Fed speakers are all staking their ground publicly,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said by phone. “The environment remains cautious but, statistically speaking, the odds of another big increase in risk aversion seem pretty low.”

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