Tuesday, March 9, 2010

Dollar Falls as Stock Gains Encourage Demand for Riskier Assets

By Ben Levisohn

March 9 (Bloomberg) -- The dollar fell against the currencies of commodity-exporting nations including Brazil and Canada as advancing stocks encouraged demand for assets that historically benefit as global growth rebounds.

The yen rose against most of its major counterparts on speculation Japanese companies are bringing home overseas earnings before the nation’s fiscal year ends this month. The pound weakened versus all 16 of the most-traded currencies after Fitch Ratings said the U.K.’s debt profile has deteriorated “pretty sharply.”

“It’s relatively risk-friendly environment,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The late trading rise in European equity markets promoted risk tolerance in currencies, and the currencies most closely correlated with growth are benefiting.”

The dollar depreciated 0.4 percent to 89.97 yen at 4:09 p.m. in New York, from 90.31 yesterday. It rose 0.3 percent to $1.3598 against the euro, from $1.3634. Europe’s common currency declined 0.6 percent to 122.36 yen, from 123.13.

Australia’s currency rose 0.5 percent to 91.38 U.S. cents, from 90.92 yesterday. Brazil’s real gained 0.7 percent to 1.7757 per dollar, from 1.7885 yesterday.

The greenback fell versus the real for the ninth time in 10 days as rising stock markets spurred carry trades, in which investors buy higher-yielding assets with amounts borrowed in nations with low interest rates. The benchmark of zero to 0.25 percent in the U.S. makes the dollar a popular source of funds to invest at higher returns in countries such as Brazil, where the central bank target is 8.75 percent.

Near Year’s High

The Standard & Poor’s 500 Index gained as much as 0.6 percent today, one year after it closed at a 12-year low. The equity benchmark has rallied 69 percent since then. It closed today at 1,140.45, within 1 percent of its 52-week high of 1,150.45 in January.

The yen rose versus the dollar on speculation Japanese companies are bringing overseas profits home before the nation’s fiscal year ends on March 31.

“Japanese repatriation flows are likely to continue for the next few weeks until fiscal year-end at the end of March,” Aroop Chatterjee, a currency strategist at Barclays Plc in New York, wrote in a report today. “These flows are likely to cap dollar-yen rallies and potentially limit the upside of other yen crosses.”

Seven-Week High

The Australian dollar touched its strongest level in seven weeks versus the greenback, 91.48 U.S. cents, as a measure of job vacancies jumped by the most in more than a decade, prompting speculation that the central bank will raise interest rates next month.

Swaps traders are betting on a 30 percent chance the Reserve Bank of Australia will increase its benchmark rate when it meets April 6, according to a Credit Suisse AG index. That’s up from a 25 percent chance yesterday.

The pound slid after Fitch said the U.K. needs to make a stronger fiscal adjustment to help reduce its debt ratio. Adjustments to revenue and spending plans are taking place at “too slow” a pace, Brian Coulton, head of global economics at Fitch, said in a presentation in London. Britain should cut its deficit to 3 percent of gross domestic product by March 2015 instead of the planned 4.4 percent, he said.

“Investors quickly connected the dots to see that a rudderless government is the most likely outcome in the forthcoming election, further hampering sterling,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut.

Fitch on Greece

The euro dropped versus the yen and the dollar after Fitch Director Christopher Pryce said at a conference in London that while the outlook for Greece is “probably OK” in the short term, prospects in the next six to nine months are less certain. There are “clearly already the beginnings of dissent within the Greek cabinet,” Pryce said.

“Over the past few days there was optimism that the austerity packages announced would lead to underlying improvement,” said Todd Elmer, global market currency strategist at Citigroup Inc. in New York. “‘Concerns over solvency in euro area will linger, and that will weigh on the euro.”

The euro pared its loss versus the yen after the European Commission said in a draft report Greece is on course to meet its budget goals in 2010. The report will be discussed by European Union finance ministers at a regular meeting in Brussels next week.

All six major European currencies tracked by Bloomberg, including Sweden’s krona and Norway’s krone, fell versus the dollar and the yen today.

Krona, Krone

The krona fell 0.7 percent to 12.61 yen, from 12.70 yesterday. Sweden’s currency dropped 0.4 percent to 7.1337 per dollar, from 7.1067. The krone declined 0.6 percent to 15.24 yen, from 15.33. Norway’s currency was down 0.2 percent to 5.9040 against the dollar, from 5.8915.

Chile’s peso weakened for the first time in six days as a drop in copper, the country’s biggest export, curbed a rally that was fueled by speculation the government would repatriate overseas savings to fund reconstruction after last month’s earthquake.

The peso slid 0.7 percent to 512.23 per dollar, from 508.76 yesterday. The currency is up 2.4 percent against the greenback this month, the best performance among six major Latin American currencies tracked by Bloomberg, after Chile was struck by an 8.8-magnitude earthquake on Feb. 27.

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