Dollar Trades Near 1-Month High on Fannie, Freddie Rescue Bill

By Kosuke Goto and Stanley White

July 28 (Bloomberg) -- The dollar traded near a one-month high against the yen after Congress passed legislation to prop up Fannie Mae and Freddie Mac, the two largest providers of U.S. mortgage financing.

The currency was also near a three-week high versus the euro on speculation a government report this week will show the U.S. economy expanded last quarter at more than twice the annual pace of the prior three months. The Australian dollar fell on concern losses linked to U.S. home loans are spreading after Australia & New Zealand Banking Group Ltd. said full-year profit will drop as much as 25 percent on bad debts.

``The rescue plan is supportive for the dollar,'' said Yuji Saito, head of foreign-exchange sales in Tokyo at Societe Generale SA, France's second-largest bank by market value. ``It relieves the anxiety about the U.S. housing slump.''

The dollar traded at 107.96 yen at 10:06 a.m. in Tokyo, from 107.84 on July 25 in New York. It was at $1.5698 a euro, from $1.5709. The euro traded at 169.49 yen and approached a record low of 169.96 set on July 23, compared with 169.40 on July 25. The greenback may rise to as high as 108.60 yen should it break through 108.30 yen today, Saito forecast.

The U.S. Congress sent to the president legislation to stem foreclosures for 400,000 homeowners and aid Fannie Mae and Freddie Mac, its most sweeping effort to halt the biggest housing slump since the Depression. President George W. Bush will sign the measure into law, a spokesman said.

The U.S. economy grew at a 2.3 percent annual rate from April to June, compared with 1 percent growth in the first quarter, according to the median estimate in a Bloomberg News survey before the July 31 report.

Bad Debts

The Australian dollar fell for a fifth day after ANZ, the nation's fourth biggest bank by market value, joined National Australia Bank Ltd., the nation's largest, in warning of increased provisions for non-performing loans.

The Australian dollar slid to 95.30 U.S. cents compared with 95.63 cents in late New York. It has fallen 2.3 percent the past week, the second-biggest decline among the 16 most-traded currencies.

Six months after correctly identifying the Australian dollar as one of the best bets in the foreign exchange market, the biggest investor in the nation's debt says the rally is coming to an end.

Funds Turning Bears

Daiwa Asset Management Co., which holds 4 percent of the government's bonds, expects the currency to close the year at $1, after earlier forecasting a surge to $1.10. Daiwa cut its estimate as the country's benchmark S&P/ASX 200 Index of stocks dropped to a 2 1/2-year low this month and the Reuters/Jefferies CRB Index of commodities fell 13 percent from its record high on July 2.

Mizuho Asset Management Co., State Street Global Advisors and Putnam Investments are also turning into bears as the U.S. economic slowdown spreads, curtailing the rally in coal, oil and metals that fueled Australia's expansion. Lehman Brothers Holdings Inc., which recommended the currency in February, now predicts it will depreciate 21 percent by 2009.

Home Prices

Gains in the dollar may be limited by speculation that declines in home prices and employment will make it difficult for the Federal Reserve to raise interest rates.

Home prices in the S&P/Case-Shiller index fell by 16 percent in May from a year ago, the most on record and faster than a 15.3 percent decline in April, according to a Bloomberg News survey. The index is scheduled for release tomorrow.

U.S. nonfarm payrolls fell by 75,000 in July, following a decline of 62,000 in the previous month, according to a separate survey. The Labor Department will release the data on Aug. 1.

``Data on housing and payrolls pose downside risks to the dollar,'' said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``Given the state of the housing market, you can't be overly optimistic on the U.S. economy. That makes it almost impossible for the Fed to raise rates.''

The dollar may fall to 106 yen this week, he said.

Futures on the Chicago Board of Trade show a 93.1 percent chance the Fed will keep borrowing costs on hold at 2 percent when it announces its next decision on Aug. 5, up from 64.1 percent a month ago.

German Confidence

The euro may weaken on speculation an industry report today will show German consumer confidence fell for a third month as soaring energy prices sapped people's purchasing power.

GfK AG's index for August, based on a survey of about 2,000 people, probably declined to 3.5 from 3.9 for June, the Nuremberg-based market-research company will say today, according to the median of 25 estimates in a Bloomberg News survey.

``The European economy is facing a major setback,'' Tomoko Fujii, head of Japan economics and strategy at Bank of America in Tokyo, wrote in a research note today. ``The markets cannot price in an ECB rate hike any more. We are recommending euro- selling against the dollar.''

Europe's single currency may fall to $1.54 against the dollar by the end of September, she said.

To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net