Dollar May Fall Before Report Forecast to Show Retail Decline

By Stanley White and Ye Xie

Aug. 13 (Bloomberg) -- The dollar may fall before a government report forecast to show U.S. retail sales declined in July for the first time in five months.

The yen rose to its highest in two months against the euro after JPMorgan Chase & Co. said it will write down losses of at least $1.5 billion on mortgage-backed assets this quarter, leading investors to cut holdings of higher-yielding assets funded in Japan. The Australian dollar fell for a 12th day as prices of commodities the nation exports extended their decline.

``A disappointing retail sales number could limit the dollar against the yen,'' said Hiroshi Yoshida, foreign-exchange trader in Tokyo at Shinkin Central Bank. ``This may also cause declines in stocks, which would encourage yen buying as investors avoid risky trades.''

The dollar traded at $1.4888 per euro at 8:53 a.m. in Tokyo from $1.4926 late yesterday. The dollar was little changed at 109.30 yen. Japan's currency touched 162.68 yen, the highest since June 5, before trading at 162.91 yen from 163.11. The dollar may fall to 108.50 yen today, Yoshida forecast.

The Australian dollar declined to 86.87 U.S. cents from 87.38 cents in late Asian trading yesterday. Crude oil prices slid to the a 14-week low, gold fell for an eighth session and copper dropped to a six-month low in New York trading yesterday. Gold and crude oil are Australia's third and fourth most- valuable commodity exports.

Japan's Growth

The yen held gains against the euro after a report today showed gross domestic product shrank at an annual rate of 2.4 percent in the three months ended June 30, versus economists' estimates of a 2.3 percent decline, according to a Bloomberg News survey.

The greenback has rallied this month on bets the U.S. economic slowdown is spreading to Europe and as commodity prices have tumbled.

U.S. retail sales probably dropped 0.1 percent last month after increasing 0.1 percent in June, according to the median forecast of 75 economists surveyed by Bloomberg News. It would be the first decline since February. The Commerce Department is scheduled to release the report today.

Federal Reserve Bank of Dallas President Richard Fisher said the economy will ``broach zero growth'' in the second half of the year, the Dallas Morning News reported yesterday.

U.S. gross domestic product increased at an annual rate of 1.9 percent in the second quarter, the Commerce Department reported July 31. The economy contracted 0.2 percent in the final three months of last year.

Stronger Yen

The yen rose to 94.96 versus the Australian dollar from 96.29 in late Asia. It also advanced to 75.63 per New Zealand dollar from 76.67 on speculation investors reduced carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7.25 percent in Australia and 8 percent in New Zealand.

JPMorgan, the second-largest U.S. bank by market value, said late Aug. 11 that trading conditions ``have substantially deteriorated'' since July. Financial firms have reported more than $493 billion of losses and writedowns on debt securities since the subprime-mortgage market collapsed in 2007.

``I don't think these yen gains are short-lived,'' said Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York. `If the bad news continues to happen, especially from the U.S., then definitely you will see a clear sign of the peak in the dollar-yen.''

Dollar's Rally

Crude oil fell as much as 1.9 percent to $112.31 yesterday, the lowest since May 2, easing inflation concern for the European Central Bank, which kept its main refinancing rate at a seven-year high of 4.25 percent last week.

The yield on three-month Euribor futures contract for June decreased 0.05 percentage point to 4.48 percent yesterday, indicating some investors bet the ECB will lower borrowing costs by the second quarter of 2009.

The economy of Germany, the largest of the 15 nations that use the euro, probably contracted in the second quarter for the first time in almost four years, according to the median forecast of 41 economists surveyed by Bloomberg News. The government is due to report the data tomorrow.

To contact the reporters on the story: Stanley White in Tokyo at swhite28@bloomberg.netYe Xie in New York at yxie6@bloomberg.net