Dollar Trades Little Changed Against Yen Before Housing Data

By Stanley White

July 25 (Bloomberg) -- The dollar traded little changed against the yen before government reports forecast to show U.S. durable-goods orders and new-home sales dropped in June, signaling no end in sight to a housing recession.

The yen headed for its first week of gains since May versus the euro as stocks fell on concerns credit-market losses will widen, prompting traders to pare holdings of higher-yielding assets funded in Japan. The Australian dollar fell as National Australia Bank Ltd., the country's biggest lender by assets, made provisions for possible losses on credit investments.

``Sentiment for the dollar has turned negative and gains will be limited,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``The fundamentals of the U.S. economy don't support a rise in the currency.''

The dollar traded at 107.24 yen at 10:17 a.m. in Tokyo from 107.33 in late New York yesterday. The currency was little changed at $1.5669 per euro, after touching $1.5629 yesterday. The yen traded at 167.99 against the euro from 168.28, down 1.2 percent from a record low of 169.96 per euro reached on July 23. The dollar may decline to 107 yen next week, Amikura forecast.

The Australian dollar was the worst performer among the 16 most-traded currencies after Melbourne-based National Australia Bank said it increased provisions for collateralized debt obligations by A$830 million ($795 million) after the value of the investments dropped. Its shares fell the most since 2001.

Durable Goods

Orders for U.S. durable goods, products that last several years, fell 0.3 percent in June, according to the median forecast of 78 economists surveyed by Bloomberg News. There was no change the previous month. The Commerce Department is due to release its report at 8:30 a.m. in Washington.

The department will report at 10 a.m. today that sales of new houses dropped to an annual pace of 503,000 last month, from 512,000 in May, according to a separate survey of economists.

The dollar is still headed for its second weekly advance against the euro and yen after traders added to bets the Federal Reserve will raise interest rates from 2 percent this year. Philadelphia Fed President Charles Plosser said on July 23 rates should rise ``sooner rather than later'' to quell inflation.

`Formed a Ceiling'

``The dollar has formed a ceiling at 108 yen and is likely to approach 107 yen should durable goods or new home sales miss expectations,'' Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland Group Ltd. in Tokyo and a former Bank of Japan currency trader, wrote in a research note today.

Futures on the Chicago Board of Trade showed a 40 percent chance the Fed will increase its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point by Sept. 16, up from 34 percent odds a week ago. Policy makers next meet Aug. 5.

Falling U.S. home prices will force financial firms to write down $1 trillion, according to Gross, who runs Pacific Investment Management Co. in Newport Beach, California. He made the comment on the company's Web site yesterday. Financial firms have reported $467.9 billion in losses and writedowns since the start of 2007, according to data compiled by Bloomberg.

U.S. home resales fell to the lowest level in a decade last month, National Association of Realtors said yesterday.

The yen was little changed after Japan's core consumer prices, which exclude fruit, fish and vegetables, climbed 1.9 percent in June from a year earlier, matching economists' estimates in a Bloomberg News survey. That marked the fastest gain in a decade.

Consumer Prices

The Bank of Japan cut its growth forecast last week, saying record commodity costs are causing companies and individuals to cut spending. Keeping the target lending rate on hold at 0.5 percent is appropriate for the central bank to put more emphasis on downside risks to the economy, BOJ board member Atsushi Mizuno said yesterday.

The euro is on course for its first weekly decline in more than two months against the yen after the Ifo institute's German business climate index yesterday posted its biggest decrease since the Sept. 11, 2001, attacks.

Traders pared bets yesterday that the ECB will increase interest rates for a second time this year. The implied yield on the December Euribor futures contract fell 11 basis points, or 0.11 percentage point, to 5.10 percent. The Frankfurt-based central bank raised its main refinancing rate to 4.25 percent on July 3, citing the need to control inflation.

``We're starting to see the weakness of the U.S. economy is spilling over globally,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``The dollar hasn't turned around yet, but given that the U.S. is ahead of the cycle, it bodes well for the dollar.''

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net