Wednesday, March 10, 2010

Yen Falls as Stocks Rise, Investors Seek High-Yield Currencies

By Ben Levisohn

March 10 (Bloomberg) -- The yen declined against all of its major counterparts as stocks rose, driving investor demand for currencies tied to growth, including the Norwegian krone and Brazilian real.

The dollar fell against 12 of the 16 most-traded currencies tracked by Bloomberg as crude oil touched a two-month high, boosting the currencies of commodity producers. The euro gained, touching the strongest level versus the yen in two weeks, after Portugal’s cost of borrowing declined in a sign that investors are less worried about Greece’s debt crisis spreading.

“The currency market is comfortable tracking along the stock market, and that’s driving the yen lower,” said John Norris, senior market strategist for Brewer Investment Group in Chicago. “If the Standard & Poor’s 500 Index gets above its January high, that opens the door for a further rise in the euro.”

The yen depreciated 1 percent to 123.58 per euro from 122.35 yesterday at 4:22 p.m. in New York and weakened 0.6 percent to 90.51 per dollar, from 89.97. The euro strengthened 0.4 percent to $1.3656.

Norway’s krone was the top performer against the U.S. dollar as stocks gained, with the S&P 500 Index advancing 0.5 percent. Crude oil for April delivery climbed as much as 1.9 percent to touch $83.03 a barrel, the highest since Jan. 11, before trading at $81.93. Oil is Norway’s biggest export. The krone appreciated 0.6 percent to 5.8666 per dollar.

A government report showed China’s exports climbed 46 percent in February, the most in three years.

Australian Dollar, Real

The yen fell versus Australia’s dollar and Brazil’s real as better-than-expected economic data spurred carry trades, in which investors buy higher-yielding assets with amounts borrowed in nations with low interest rates. The benchmark of 0.1 percent in Japan makes the yen a popular source of funds to invest at higher returns in Australia, where the central-bank target is 4 percent, and Brazil, where it’s 8.75 percent.

The Japanese currency depreciated 0.7 percent to 82.78 per Australian dollar and touched 83.32, the weakest since Jan. 21. It dropped 1 percent to 51.18 yen to the real.

“Conditions will continue to improve on the risk-sentiment front, and the emerging-market currencies and commodity-linked currencies are likely to outperform over the coming weeks,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London.

No Collapse

Former European Commission President Romano Prodi said the worst of Greece’s financial crisis is over and other European nations won’t follow in its path.

“I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece,” Prodi, who is also a former Italian prime minister, said in an interview in Shanghai today.

The yield premium that investors demand to hold Portugal’s 10-year bonds over German bunds fell 7 basis points after the Iberian nation auctioned 990 million euros ($1.4 billion) of 3.85 percent bonds due in 2021, more than the 750 million euros targeted. “The Greek thing has faded, and they don’t have a new club to pound the euro with here,” said David Rolley, who helps oversee $106 billion as co-head of global fixed-income in Boston at Loomis Sayles & Co. “It’s a little bit of relief rally, but this isn’t a one-act play. There will be many more opportunities to see what the market is for Mediterranean debt securities.”

Implied Volatility Falls

One-month implied volatility on euro-dollar options fell to almost an eight-week low. Traders expect swings of 9.85 percent, the lowest since Jan. 15, according to Bloomberg data. Reduced volatility indicates less probability of currency fluctuations that may erode profit on investments.

“Volatilities are collapsing,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “They’re a symbol for the perception of risk, and people think nothing can happen.”

Canada’s dollar touched the highest level against its U.S. counterpart in almost five months as investors bet the nation’s economy will be among the strongest during the recovery.

The currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, appreciated as much as 0.4 percent to C$1.0217, the strongest level since Oct. 15.

The Swiss franc pared an advance against the euro after reaching the highest level in a year, amid speculation the nation’s central bank sold the currency to damp its appreciation.

The franc was little changed at 1.4613 per euro, from 1.4623 yesterday. It touched 1.4611, the strongest since March 2009, and earlier weakened 0.1 percent to 1.4630.

“Looking at the chart, it would certainly suggest official activity,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London.

New Zealand Dollar

Swiss National Bank spokesman Nicolas Haymoz declined to comment on the currency movements. Margaret Critchlow, a spokeswoman for the Bank for International Settlements, said she was “not aware” of any franc intervention.

New Zealand’s dollar erased gains versus the dollar and pared an advance against the yen after Reserve Bank Governor Alan Bollard left the nation’s benchmark interest rate at a record low of 2.5 percent and said economic growth may remain subdued. The currency, known as the kiwi, fell 0.1 percent to 70.23 U.S. cents and rose 0.5 percent against the yen to 63.56, after earlier rising 1.7 percent.

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